The essence of equilibrium in the market is that in this state this market can be considered balanced, that is, neither buyers nor sellers, for their part, have a desire to upset the existing equilibrium. The equilibrium price is the point at which the interests of the parties will coincide. In other words, equilibrium is a situation where, at a given price, demand is equal to supply.
Undoubtedly, economic values that affect the value of certain goods in the process of economic activity are constantly changing. For this reason, the equilibrium price in dynamics can occur only in rare cases and is achieved only for a short period of time. The reasons for such changes may be changes in income, the introduction of new technologies, changes in tastes, fashion, increase or decrease in prices for various factors of production. If these values begin to change, the supply and demand curves shift to the left or right, respectively, the market equilibrium and the equilibrium price change.
Equilibrium Price Functions
· Information.
· Distribution.
· Balancing.
· Stimulating.
· Normalizing.
Equilibrium stability
An unbalanced market may return to this state after some time or not return. Here we are faced with the problem of stability or stability of equilibrium.
Equilibrium stability is the ability of the market to return to a state of equilibrium again under the influence of only internal factors. In the event that the equilibrium in the market is stable, then additional regulation is not mandatory, that is, the market is able to maintain balance on its own. And in the event that this market does not have the property of stability, then its regulation becomes necessary.
The main means of state influence on the market are: subsidies, taxes, fixed prices or fixed volumes of production of goods. The mildest and most appropriate way to regulate the market mechanism is taxation. Taxes do not change the conditions of market processes, do not interfere with the freedom of action of market entities.
Deviations from the equilibrium price
Either an exact equilibrium price or a deviation from the equilibrium state is possible. Market equilibrium exists when there is no longer any opportunity to change the quantity of goods sold or the market price.
The market price is set automatically in the market. This process was called by A. Smith the "invisible hand" mechanism. An increase in the demand price compared with the offer price will facilitate the redistribution of certain resources in favor of markets with more solvent demand.
Overpriced may be evidence of the relative rarity of goods, which encourages manufacturers to expand production and meet the needs of customers. Since the equilibrium price can significantly exceed the costs of producers whose costs are below the average for the market, this state will contribute to the redistribution of resources to the best producers, which will increase the overall efficiency of the economy.
However, consumers are not always satisfied with established equilibrium prices. Public discontent forms the basis for active state intervention in pricing processes.
In practice, state intervention, as already noted, can result in setting minimum or maximum prices. If the minimum price established by the state is below the equilibrium, a deficit arises, and if the minimum is higher than the equilibrium price, an excess of goods is formed.