So far, we've looked at supply, we've looked at demand, and the main
question that now arises is, "How do these two opposing forces of supply and
demand shape the market?" Buyers want to buy as many goods as
possible, as cheaply as possible. Sellers want to sell as many goods as
possible, at the highest price possible. Obviously, they can't both have their
way. How can we figure out what the price will be, and how many goods will be
sold? In most cases, supply and demand reach some sort of compromise on the
price and quantity of goods sold: the market price is the price at which
buyers are willing to buy the same number of goods that sellers are willing to
sell. This point is called market equilibrium. Because supply and demand
can shift and change, equilibrium in a standard market is also fluid, responding
to changes in either market force. There are, however, some cases in which the
normal fluidity of equilibrium does not exist, whether due to the structure of
the market or inefficiencies within the market. We will examine some of these
cases, such as monopolies or markets with government intervention, which are
not "traditional" market economies.
In this unit, we will learn how to find market equilibrium to determine the
prices and quantities of goods sold, we will calculate firms' profit margins,
and we will study ways in which a market can deviate from this traditional
market model.
