Market equilibrium is a state of the economy when the quantity of goods for which there is steady demand at a certain price is equal to the quantity of goods offered for sale at a demanded price.
The part of the economic space in which the interests of sellers and buyers are located is called the economic area. In everyday life, the purchase and sale of goods can take place at completely different prices, limited by the upper limit of the demand price and the lower limit of the offer price. The price of such a real deal is determined by a number of factors: the balance of power (monopoly or monopsony); irrational behavior due to lack of experience or poorly informed transaction participants.
In this economic space there is a stable point (or market equilibrium ), when neither the buyer nor the seller is beneficial to change the established state of affairs. At this point, there is an optimization of market behavior.
The price at which the product offered on the market corresponds to the demand for it is called the equilibrium. The corresponding volume of the offered product on the market is an equilibrium supply.
The equilibrium price is at the intersection of the supply and demand curves. It represents an optimal price. That is, if the market price falls below the equilibrium, this will indicate a shortage of goods, and if it rises above the equilibrium, there will be overstocking of unrealized products. In both cases, the market mechanism begins to work , putting pressure on prices from the lower and upper sides to achieve an equilibrium price.
Market equilibrium will be maintained as long as non-price factors affecting shifts in supply and demand graphs remain stable. In a normal economy, equilibrium fluctuations are temporary. As a result of price fluctuations, a new equilibrium price should be established in the end. This is the main principle of the functioning of the market.
At the micro level, two types of equilibrium are distinguished: private and general market equilibrium.
Private market equilibrium is a situation in which total social production consists of separate groups of goods that are produced by individual producers, and they are sold to individual groups of the population.
General market equilibrium is a situation where there is a correspondence between total social production and the total value of national income that is intended for consumption by the population, that is, this is a balance between the purchasing power of the population and the quantity of goods and services offered by it .
Market equilibrium is considered stable when a deviation from it entails a simultaneous return to its original state. Otherwise, the equilibrium is unstable.
Instant equilibrium characterizes the situation when the supply on the market does not change.
The state of the tax is directly affected by tax policy. The effect of taxes on market equilibrium comes down to the following mechanism.
Taxes regulate the income of social groups. Additional revenues affect the purchasing power of the private sector. At the same time, an increase in taxes leads to a decrease in the income of enterprises and households and their opportunities for consumption and savings. Lower tax rates have a positive effect on the income of households and enterprises, which leads to stimulation of demand.
Taxes are costs that lead to higher prices for goods, they are passed on to producers, and then to consumers.
It doesn’t matter whether the seller or the buyer pays tax; in any case, this affects the state of the supply and demand curves . If the buyer pays, demand falls; if the seller - the supply is reduced.