In the intense competitive market scenario, the outcome of the interaction in between the consumers and producers play a critical role in the way of determining the supply and demand equilibrium along with the price and quantity of the products. Market force is the critical factor in the way of lowering the price of the products at the time, when the supply exceeds the required quantity of the products. This can also happen at the time, when the required quantity of product exceeds the supplied quantity of products. This movement in between the demand and supply of the products can continues until the quantity demanded equals quantity supplied. This situation is considered as market equilibrium in which a balance in the market is being maintained. The firm is defined as the organization, which plays a critical role in the way of transforming the resources into products. Thus, in the context of market economy, the firms are considered as the largest producing unit.
At the high price of the products, the supplied quantity of product is higher than that of the demanded quantity of products. This particular market situation acts as a driving force behind the firms to lower the price in order to sell their products properly in accordance with the demand among the customers. If the sellers increase the price of the products, the demand among the customers eventually decreases. This is the reason for which the purchasers might face supply of the products, which acts as a driving force behind them to lower the price of the products. With the lower price of the products, the demanded quantity of product would be higher than that that of supplied product quantity. This can positively impact the spending attitude among the customers and lead them to spend more for the sake of spending more for buying their desired products.
However, if the sellers keep the price of the products too low, they will have to sell their supply before satisfying the entire demand in the market, which would ultimately result in deficiency in the market. A graph is presented below in order to show the situation, where the supply equals to that of the demand of the products.
Market equilibrium is defined as the stage where the quantity of demanded price of products equals to that of the supplied quantity of products. Equilibrium price is one of the most significant aspects of market equilibrium which is defined as the market clearing price which can be referred to that price which can happen at the time, when there is no unsold stock or unsupplied demand. Technology, taxes and subsidies, number of sellers, price expectations and the original price of the products are some of the major factors that play a major role in the determining the degree of supply of the products. On the other hand, consumer preferences, income, prices of substitutes and complements, and the number of buyers are the key factors in determining of the products. Market equilibrium can happen at the time when there is a balance in between the demand of the products.
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