Question

Why do markets will move to equilibrium? What does this mean for resources (factors of production)?

Why do markets will move to equilibrium? What does this mean for resources (factors of production)?

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Answer #1

Market equilibrium is the market state where supply in market is equal to demand in market.If market is not at equilibrium then markets tends to move to equilibrium.If the market is in equilibrium price wont change unless an external factor changes the supply or demand, resulting in disruption of equilibrium.If price is below equilibrium there is excess demand .So buyers bid up price inorder to obtain goods and services in shorter supply.Additionally sellers more happy to see demand , will start to supply more of it. As a result pressure on price and supply will stabilise at market equilibrium.

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