Market Equilibrium

Market equilibrium is a state of the economy when the quantity of goods for which there is a steady demand at a certain price is equal to the quantity of the product offered for sale at a demanded price.

Part of the economic space in which the interests of sellers and buyers are located is called the economic area. In the usual life, the purchase and sale of goods can take place entirely at different prices, limited by the upper limit of the demand price and the lower limit of the supply price. The price of such a real transaction is determined by a number of factors: the correlation of forces (monopoly or monopsony); Irrational behavior due to lack of experience or poor awareness of transaction participants.

In this economic space there is a stable point (or market equilibrium ), when neither the buyer nor the seller is profitable to change the established state of affairs. At this point, there is an optimization of behavior in the market.

The price at which the product offered on the market corresponds to the demand for it, is called the equilibrium. The corresponding volume of the offered product on the market is an equilibrium proposal.

The equilibrium price is at the intersection of supply and demand curves. It is an optimal price. That is, if the market price falls below the equilibrium price, this will indicate a shortage of goods, and if it rises above the equilibrium level, there will be overstocking with unrealized products. In both cases, the market mechanism begins to put pressure on prices from the lower and upper sides to achieve an equilibrium price.

Market equilibrium will persist, while non-price factors that affect the shifts in demand and supply schedules remain stable. In a normal economy, equilibrium fluctuations are of a temporary nature. As a result of price fluctuations, a new equilibrium price should ultimately be established. This is the main principle of the functioning of the market.

At the micro level, two types of equilibrium are distinguished: private and general market equilibrium.

Private market equilibrium is the situation when public aggregate production consists of separate groups of goods produced by individual producers, and they are realized by separate groups of the population.

The general market equilibrium is the situation when there is a correspondence between the public aggregate production and the total value of the national income that is intended for consumption by the population, that is, the equilibrium between the purchasing power of the population and the quantity of goods and services it offers .

Market equilibrium is considered sustainable in the event that the deviation from it implies a simultaneous return to the original state. Otherwise, the equilibrium is unstable.

Instant balance characterizes the situation when the supply on the market does not change.

The state of the market is directly influenced by the tax policy pursued by the state. The effect of taxes on market equilibrium is reduced to the action of the following mechanism.

Taxes regulate the incomes of the social strata of the population. Additional revenues affect the purchasing power of the non-state economy sector. At the same time, the increase in taxes leads to a decrease in the incomes of enterprises and households and their possibilities for consumption and savings. The reduction of tax rates positively affects the income of households and enterprises, which leads to the stimulation of demand.

Taxes are costs that lead to an increase in prices for goods, they are shifted to producers, and then to consumers.

It does not matter whether the seller pays the tax or the buyer, in any case it affects the state of the demand and supply curves . If the buyer pays, demand falls; If the seller - reduced supply.