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Econ Videos 79 videos

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Econ: What is Market Equilibrium? 4 Views


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What is Market Equilibrium? Market equilibrium is an economic status where demand and supply are even, resulting in price stability. As demand drives up prices, the incentive for others to seek to expand supply increases, and prices ultimately fall as supply expands. Market equilibrium, when achieved, is often artificially obtained via monopolistic practices such as with DeBeers’ control over the diamond trade.

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Transcript

00:00

And finance Allah shmoop what is market equilibrium All right

00:07

people when we're talking market equilibrium we're talking about the

00:10

market for a specific good or service pick a thing

00:14

Anything Market equilibrium happens when the quantity demanded of a

00:17

thing equals the quantity supplied of a thing at a

00:20

given price Well at market equilibrium there's no excess supply

00:24

which would mean you know cranky suppliers and no excess

00:27

demand which would mean cranky consumers at equilibrium Everybody's chill

00:32

at a price Well the reason economist gush over market

00:35

equilibrium like a diehard believer at a J Beat's concert

00:39

is because well it's kind of a magical force of

00:41

its own Like the mother nature of capitalism When the

00:44

market is competitive market equilibrium happens naturally If you ever

00:48

heard of Adam Smith's invisible hand well this is what

00:52

he was talking about In a perfectly competitive market where

00:55

there are lots of equally size sellers selling no Amazons

00:58

or Walmart stopping all over the little guy's the invisible

01:01

hand is what keeps surpluses and shortages from happening For

01:05

example the fake mustache market Yes there's a market for

01:08

that where the mustache supply curve crosses with the mustache

01:11

demand curve And that's where mustache equilibrium is that drop

01:15

a plumb line down from equilibrium to see the equilibrium

01:18

Quantity of moustache is likewise You can see the equilibrium

01:22

price where the supply and demand curves cross on the

01:24

left hand side of graft In our perfectly competitive mustache

01:27

market the amount of moustache is sold in the price

01:29

they're soul That is capitalism's invisible hand at work When

01:32

suppliers try to sell their fake mustache is at too

01:35

high a price Consumers will Balkh They'll think it's a

01:38

rip off and go buy somewhere else instead Leaving cellars

01:41

with a surplus of fake mustache is Remember the mustache

01:44

market has many mustache suppliers all competing against one another

01:48

well because consumers will flock to the mustache supplier with

01:51

the best value like best prices in this case since

01:54

it's all the same moustache Will this keep suppliers from

01:57

holding the fake mustache market hostage Many mustache The buyers

02:00

competing for the dollars of mustache buyers will naturally drive

02:04

prices down if they're too high Well the invisible hand

02:06

smacks mustache suppliers upside the head making suppliers realized they

02:10

should drop their price if they want to sell some

02:13

moustache is but they don't want to make the price

02:15

too low because well if suppliers dropped the price of

02:18

a fake moustache is too low Well there will be

02:21

a mustache shortage in a while We can't have that

02:24

right The moustache will be super cheap Everyone rushed to

02:26

buy one and there won't be an in store and

02:28

people be cranky Yes when there's a shortage of moustache

02:31

is there's an ugliness Not even the best fake mustache

02:34

could cover up Consumers will be at each other's throats

02:36

Fighting over fake moustache is like it's Black Friday or

02:40

something like that When they're all sold out consumers will

02:42

be demanding Mauritz just too good of a deal So

02:45

in the case of a moustache shortage the invisible hand

02:48

will be smacking mustache suppliers upside the head again making

02:51

the supplier realized they could be making more money if

02:54

they sold more Mustache is and at a higher price

02:58

Well after competitive suppliers get some wise guidance from the

03:00

smack smack invisible hand We get market equilibrium Just like

03:04

Goldilocks The invisible hand says Uh not too much not 00:03:08.503 --> [endTime] too little but just right Yeah

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