Demand, Supply, and Market Equilibrium
Demand is the quantities of the commodities that a consumer is willing and able to pay and purchase at the given price at a given period of time. Demand is backed by strong desire.
Supply is the quantities of the commodities that a supplier or producer is willing and able to supply at a given price at a given period of time.
Market equilibrium is the condition or point in which market demand is equal to market supply (market demand= market supply). At this point, the quantity is formed at the given prices. The market-clearing price is sometimes called the equilibrium price because at this price, the quantities that the producers take to market will be consumed by consumers and nothing will be leftover. There will be neither excess supply and nor shortage. Both the suppliers and buyers will be satisfied at this price level. It can be further explained with the below figure;
In the above figure, quantity demanded and supply are measured along the x-axis, and the price is measured along the y-axis respectively. E is the equilibrium point where the downward sloping demand curve and upward sloping supply curve intersect each other where OQ quantity is demanded at the OP price level. It means, all the quantities of the goods will be sold at this price level.
Why does the market demand curve slope downward?
The market demand curve slopes downward because of the inverse or negative relationship between the demand curve and the price of the commodity. When the price increases then the quantity demanded decreases and when the price falls then the quantity demanded increases and vice versa.
In the above figure, the demand of the commodity is measured along the x-axis and the price of that commodity along the y-axis respectively. Initially, OQ quantity is demanded at the OP price level. When the price rises from OP to OP1 then the quantity demanded increases from OQ to OQ1. Likewise, when the price falls from OP to Op1 then the quantity demanded increases from OQ to OQ2 respectively. Here, DD is the downward sloping demand curve because of the inverse relationship between demand and price.
Why does a Market Supply Curve slope upward?
Supply is the quantities of the commodity supplied by the suppliers at the time period at the given price. The market supply curve slopes upward because of the positive relationship between market supply and price. When the price increases then the quantity demanded also increases and when the price decreases then the quantity supplied also decreases and vice-versa.
In the above table, quantity supplied is measured along the x-axis, and the price is measured along the y-axis respectively. Initially, OQ1 quantity is supplied at the OP1 price level. When the price falls from OP1 to OP2 then the quantity demanded also decreases from OQ1 TO OQ2. Similarly, when the price increases from OP1 to OP2 then the quantity supplied also increases from OQ1 to OQ3.