We know that market prices are determined by demand and supply. When a market settles at a point where the quantity demanded equals the quantity supplied it is called market equilibrium.
This point is the price at which buyers can buy the quantity they wish to buy and suppliers can sell the quantity they wish to sell.
Market equilibrium is where the demand and supply curves meet.
Supply
Demand
Quantity i
Market equilibrium is when quantity demanded equals quantity supplied.
The market price will change if one of the factors that determines demand and supply changes.
• Increased supply and unchanged demand leads to a decrease in price. • Decreased supply and unchanged demand leads to an increase in price.
Example 1
Crude oil is a product sold in the global commodities market. In early 2016 there was an overproduction of oil in the world. The price of crude oil was trading at about 30 US dollars a barrel, down from more than 100 US dollars a barrel in 2014. The increased supply of oil led to a decrease in oil price.
Example 2
Soccer stars have a unique set of skills that a lot of the population do not have. Because their skills are in scarce supply, they are paid high salaries.
Football clubs expect to get a return on their investment, as key players raise the profile of the club and lead to more success. There will be huge demand to see the top teams play and this demand contributes to the high salaries.
