Market Equilibrium

MARKET EQUILIBRIUM

What is Market Equilibrium ?

 QS=QD, is a situation in which the current market price, quantity supplied equals quantity demanded.

there is no likelihood that the price will increase or decrease when the market reaches its equilibrium. 

There are 4 things you have to know about Market Equilibrium : 

1. Equilibrium price and quantity

2. Shortage

When a market receives excess demand it will experience shortage. Excess demand is when the consumers are demanding more than the producers are willing to produce. To avoid this situation, an increase in the price will put an end to the shortage as it will reach an equilibrium in the market. 

3. Surplus

Surplus happens when the market produces more than the consumers are willing to buy. To avoid this situation, a decrease in price is the only way to sell the excess products. 

4. Government Intervention and price regulation :

a. Price Ceiling : a law imposed by the government that makes it illegal to charge the price higher       than  the price they imposed. Price ceiling are set below equilibrium price.

b. Price floor : a law imposed by the government that makes it illegal to sell a product lower than the price imposed. Price floor are set below the equilibrium price. 

Now that you are briefed about the Market Equilibrium, I will apply these 4 situation to an article about an Oil Market using my own opinion. 

"Oil Market is fragile, says think tank" is an article that i have found on the internet about oil markets in the world which is suffering from lack of equilibrium in the market.

The article states :

"European demand is dead and flat and will remain so for some time," Drollas said. At current growth forecasts for Europe of roughly around 1 percent oil demand in the region was likely to remain feeble. 

From what I have read from the web, European countries are trying to lessen their usage of oil by using alternative ways. This will result in low of demand from European countries which will affect the equilibrium of the oil market. Surplus will eventually happen to the European countries. 

On China, Drollas cautioned against misinterpreting Chinese oil imports. "At this moment, it is not clear how much of the oil bought by China is going into stocks and filling up new facilities," including new pipeline networks and refining capacity. "China buying more oil is not the same as China consuming more oil."

This situation is well applied to the concept of shortage whereby the market produces less than the consumer's intake. 

Crude oil prices rose to more than $78 per barrel in New York Tuesday in anticipation of a weekly U.S. inventory report.

New York is facing a situation in what we called increase in the price according to the economics definition. Why is New York facing this situation? Because the supply of oil in New York are facing shortage and to make the market stable, they increase the price. 

"With no widely available alternative, consumers in the transport sector are willing to pay far higher fuel prices than their counterparts in the static sectors, helping to maintain the price of oil," CGES said

In my opinion, Government should implore a price ceiling for this situation because some people with low income could not afford what other people could afford. 

Written by, Namira