Examine How Market Equilibrium Is Determined and Explain

Market Equilibrium- Asifa Kwong Examine how market equilibrium is determined and explain why governments intervene in markets. Use 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 demanded of a particular 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 will be bought and sold in the market.

When there’s no tendency to change in price or quantity, it means that there’s no surplus or shortage of goods and services in the market (diagram 1). If there’s any mismatch in supply and demand, it will be balanced by changes in price and quantity demanded or supplied. When there’s a surplus of goods and services, there will be a decrease in demand, where supply will be greater than demand, price will fall where firms cut prices to sell surplus and there will be a contraction of supply and an extension of demand.

When there’s a shortage of goods and services, consumers bid up prices competing for the available quantity supplied of goods and series, where there’s an extension of supply and a contraction of demand ad there will be a re-established equilibrium price at a higher rate. Increase in demand will lead to a shift in the demand curve to the right where it will raise both equilibrium price and quantity. When there’s 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 lower 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 lowers the equilibrium quantity. When the market prices for goods and services in the product markets is considered to be too high or too low, market failure may occur where the price mechanism may take account of private benefits and costs of production but doesn’t 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 floor 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 petrol prices in the market maybe too high so the government would set a ceiling price that it can’t be higher than a particular amount.

Floor price refers to the minimum price that can be charged for a particular good or services, 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 lead to an increase in the price of wheat and the market will be in disequilibrium. There are often failure of private sector to provide 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 pollution level. In a government influence market, we would have pure competition in the marketplace where there’s 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 regulated market where there’s 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.

Calculate the price
Make an order in advance and get the best price
Pages (550 words)
*Price with a welcome 15% discount applied.
Pro tip: If you want to save more money and pay the lowest price, you need to set a more extended deadline.
We know how difficult it is to be a student these days. That's why our prices are one of the most affordable on the market, and there are no hidden fees.

Instead, we offer bonuses, discounts, and free services to make your experience outstanding.
How it works
Receive a 100% original paper that will pass Turnitin from a top essay writing service
step 1
Upload your instructions
Fill out the order form and provide paper details. You can even attach screenshots or add additional instructions later. If something is not clear or missing, the writer will contact you for clarification.
Pro service tips
How to get the most out of your experience with MyHomeworkGeeks
One writer throughout the entire course
If you like the writer, you can hire them again. Just copy & paste their ID on the order form ("Preferred Writer's ID" field). This way, your vocabulary will be uniform, and the writer will be aware of your needs.
The same paper from different writers
You can order essay or any other work from two different writers to choose the best one or give another version to a friend. This can be done through the add-on "Same paper from another writer."
Copy of sources used by the writer
Our college essay writers work with ScienceDirect and other databases. They can send you articles or materials used in PDF or through screenshots. Just tick the "Copy of sources" field on the order form.
See why 20k+ students have chosen us as their sole writing assistance provider
Check out the latest reviews and opinions submitted by real customers worldwide and make an informed decision.
Don't really see any of sources I provided, but elsewise its great, thank you!
Customer 452697, May 8th, 2021
Business and administrative studies
excellent job! got an A, thank you
Customer 452773, May 24th, 2023
thank you so much
Customer 452749, June 10th, 2021
Business and administrative studies
great job as always
Customer 452773, February 26th, 2023
Business and administrative studies
Customer 452773, March 3rd, 2023
excellent job made a 93
Customer 452773, March 22nd, 2023
Customer 452591, March 18th, 2021
Social Work and Human Services
Although it took 2 revisions I am satisfied but I did receive it late because of that.
Customer 452603, March 25th, 2021
I just need some minor alterations. Thanks.
Customer 452547, February 10th, 2021
English 101
IThank you
Customer 452631, April 6th, 2021
10th grade English
very good
Customer 452773, March 26th, 2023
Social Work and Human Services
Great work I would love to continue working with this writer thought out the 11 week course.
Customer 452667, May 30th, 2021
Customer reviews in total
Current satisfaction rate
3 pages
Average paper length
Customers referred by a friend
15% OFF your first order
Use a coupon FIRST15 and enjoy expert help with any task at the most affordable price.
Claim my 15% OFF Order in Chat

Sometimes it is hard to do all the work on your own

Let us help you get a good grade on your paper. Get professional help and free up your time for more important courses. Let us handle your;

  • Dissertations and Thesis
  • Essays
  • All Assignments

  • Research papers
  • Terms Papers
  • Online Classes