Solution to Mathematical Problems of Market Equilibrium and Efficiency

Introduction to Market Equilibrium

The term equilibrium may be defined as a state of balance between the opposing forces. In economic sense, equilibrium refers to a state or a situation in which opposite economic forces such as demand and supply are in balance and there is no tendency of change from such a position.

In economics, we are mostly concerned with variables that keep on changing over time. Hence, a state of equilibrium means a state characterized by the absence of change over time.

For the market to be in equilibrium market demand should be equal to market supply and at such point, equilibrium market price, quantity demanded, and supplied are determined.

Here we see the mathematical problems relating to the calculation of equilibrium price, demand quantity and supply quantity by applying the concept of market equilibrium.

We use the market equilibrium condition as Market demand equals to Market supply (MD=MS) in order to find equilibrium market prices and quantities.

Change in the market demand and supply and their effect in equilibrium price, demand, and supply 

The market demand and supply may be changed by different factors. Market demand, market supply or both may change due to the effect of change in income of the consumers, improvement in production technology, and government policies, etc.

There may be positive as well as the negative impact of such changes on the market demand and supply and as a result equilibrium price, as well as quantities, are also changed. 

For example, if quantity demand is increased and supply remains constant then price as well as quantity both will be increased in the market. In its opposite, if the quantity demand is decreased being supply remains constant then price as well as equilibrium quantity in the market is increased.

Assuming constant demand but an increase in supply leads to a fall in price and an increase in equilibrium quantity in the market and vice versa. 

If both demand as well as supply change in the market then its effect in equilibrium variables is based on the degree of change in variables. If both are increased or decreased then the ultimate effect in equilibrium price and quantities is based one which change is higher and which is comparatively lower. 

If the increase in supply is higher than the increase in demand then the resulting price will decrease and the equilibrium quantity will be increased. Similarly, if an increase in the demand quantity is higher than the increase in supplied quantity then price as well as quantity demand and supply both will be increased in the market. 

But if both demand and supply increase in the same ration than there is no change in the equilibrium price but the equilibrium quantity available in the market will be increased. 

Here you can get the solution to mathematical problems relating to market equilibrium and efficiency. The best way to get the answer to problems of demand, supply, and market equilibrium is the market equilibrium model. 

By applying this basic model, we can easily get the answer to the questions like finding equilibrium price of the product in the market, quantity demanded in the market by the buyers, the quantity of output supplied by the sellers and sometimes the gap between these two values termed as shortage and surplus. Excess demand case is called deficit in the market and excess supply is called surplus in the market. 

In the free-market economy, the interaction between demand and supply plays a significant role in the overall functioning of the economy. So demand and supply are two prime economic variables in all the types of economic systems and in the free-market economy, they both are the most prominent variables to drive an economy towards its most advanced form.

From the link given below, you can download the PDF file of major mathematical problems related to market equilibrium, determination of equilibrium price, quantities, the effect of changes in demand and supply in the equilibrium variables.