Examine How Market Equilibrium Is Determined and Explain

Market Equilibrium- Asifa Kwong Examine how merchandise equilibrium is determined and explain why governments intervene in markets. affair diagrams to illustrate your answer. Equilibrium refers to the idea that there is no tendency to change, and market equilibrium is a situation where the price and the quantity supplied and the quantity guideed of a finical good are equal. The interaction between demand and supply can change the price mechanism which determines the prices and quantity of the goods and services that entrust be bought and sell in the market.When theres no tendency to change in price or quantity, it means that theres no surplus or shortage of goods and services in the market (diagram 1). If theres any mismatch in supply and demand, it pull up stakes be balanced by changes in price and quantity demanded or supplied. When theres a surplus of goods and services, there will be a diminution in demand, where supply will be greater than demand, price will fall where fi rms cut prices to sell surplus and there will be a contraction of supply and an perpetuation of demand.When theres a shortage of goods and services, consumers bid up prices competing for the available quantity supplied of goods and series, where theres an extension of supply and a contraction of demand ad there will be a re-established equilibrium price at a higher(prenominal) rate. Increase in demand will result to a shift in the demand curve to the undecomposed where it will raise both equilibrium price and quantity. When theres a decrease in demand, the demand will shift to the left where price will drop and there will be an extension in demand and a contraction in supply.An increase in supply will shift supply to the right, it will demoralize the equilibrium price and raises the equilibrium quantity. There will be an extension in demand and a contraction in supply. A decrease in supply will shift supply to the right where there will be a raise in the equilibrium price and lo wers the equilibrium quantity. When the market prices for goods and services in the product markets is considered to be also high or to a fault low, market failure may occur where the price mechanism may take account of private benefits and costs of employment but doesnt take into account social cost and benefits.This is when the government intervenes in the market. When the government feels that the market determined price for some goods and services is too high or too low, the government may intervene in the marketplace in order to make changes to these goods and services. Governments impose price ceiling and appal prices in order to intervene the market prices. Price ceiling is the maximum price that can be charged for a good or service. For example, the gasolene prices in the market maybe too high so the government would set a ceiling price that it cant be higher than a particular amount.Floor price refers to the minimum price that can be charged for a particular good or se rvices, it is established below market equilibrium. For example, the government may think that the market price for wheat is too low, so it may impose a floor price which will manoeuver to an increase in the price of wheat and the market will be in disequilibrium. There are often failure of private sector to depict goods and services. The government may intervene in order to encourage the provision of merit goods like public education that have positive externalities, through subsidies to consumers to lower prices and increases consumption.Provision of public good, e. g. public road and police services, are not provided by individual firms at all, so the government intervenes to supply these public goods and finances them with its tax revenue. Protection of the environmental goods like air, water is intervening by the government where government may set taxes like the carbon tax to control the befoulment level. In a government influence market, we would have pure competition in the marketplace where theres no government intervention at all.This shows that no one in the market has the power to influence the market outcomes directly. The prices of the market will be determined by its supply and demand in the market system. With a modulate market where theres government intervention, the price mechanism can be changed depending on the government influence. Therefore, a regulated market can be controlled so that it can be more secured and safe where the price of goods and services is at a rage that people in the economy can effort so that our standard of living can increase.