Examples of Market Equilibrium

1. INTRODUCTION:

Market equilibrium occurs when the supply of a product or service equals the demand for it. This balance is achieved when the price of the product is such that the quantity that suppliers are willing to sell equals the quantity that buyers are willing to buy. At this point, there is no tendency for the price to change, as the market is in a state of balance.

2. EVERYDAY EXAMPLES:

Market equilibrium can be observed in various aspects of daily life. For instance, a local farmer's market may have multiple vendors selling fresh produce. If one vendor sells apples for $2 per pound and another vendor is selling the same quality apples for $1.50 per pound, buyers will likely choose the cheaper option. As a result, the more expensive vendor may lower their price to $1.50 per pound to match the competition, achieving equilibrium. Another example is a used bookstore where the owner prices a popular novel at $10. If buyers are willing to pay $10 for the book and the owner has just enough copies to meet the demand, the market is in equilibrium. A coffee shop may also achieve equilibrium by pricing their coffee at a point where the quantity they are willing to sell equals the quantity customers are willing to buy, such as $2 for a cup of coffee.

3. NOTABLE EXAMPLES:

A classic example of market equilibrium is the De Beers diamond company, which controlled the supply of diamonds and set prices to balance the market. By limiting the supply of diamonds, De Beers was able to maintain a price that balanced the quantity of diamonds they were willing to sell with the quantity that buyers were willing to buy. Another example is the housing market in a small town, where the supply of houses for sale equals the demand for housing. If there are 100 houses for sale and 100 buyers looking for a house, the market is in equilibrium. The New York City taxi market is also an example, where the number of taxi medallions issued by the city limits the supply of taxis, and the price of a medallion is determined by the demand for taxi services.

4. EDGE CASES:

A unique example of market equilibrium is the market for rare collectible coins. In this market, the supply of rare coins is limited, and the demand for them can be high. However, if the price of the coins is set too high, buyers may be deterred, and the market will not be in equilibrium. On the other hand, if the price is set too low, sellers may not be willing to sell, and again, the market will not be in equilibrium. The market for human organs, such as kidneys, is another unusual example. In some countries, the sale of human organs is allowed, and the market for these organs can reach equilibrium when the price is set at a point where the quantity of organs available for transplant equals the quantity of patients in need of a transplant.

5. NON-EXAMPLES:

Some people may confuse market equilibrium with a monopoly, where one company controls the entire market for a product. However, a monopoly is not necessarily in equilibrium, as the company may be able to set prices higher than the equilibrium price. Another example is a black market, where the supply and demand for a product are not openly acknowledged, and the market is not in equilibrium. A third example is a market with externalities, such as pollution, where the social cost of the product is not reflected in the market price, and the market is not in equilibrium.

6. PATTERN:

All valid examples of market equilibrium have one thing in common: the quantity of a product or service that suppliers are willing to sell equals the quantity that buyers are willing to buy at a given price. This balance is achieved when the market is free from external influences and the price is set at a point where the supply and demand curves intersect. Whether it's a local farmer's market or a global commodity market, the principle of market equilibrium remains the same, and it is a fundamental concept in understanding how markets work.