Economic Equilibrium

Economic equilibrium occurs when supply and demand in a market are equal. In other words, the amount of supply is equal to the amount of demand, creating a fair price for products within that market. Equilibrium can become unequal if a business begins running low on products. In this case, supply decreases while demand remains constant. Unless the business raises its prices, supply will continue to decrease, and the business will run out of products to sell, which is ultimately a revenue loss.

When there is too much supply to absorb demand, sales will slow down, inventory will become obsolete, and the business will once again begin losing revenue. To remedy the situation, prices can be lowered, creating more demand, and eventually bringing supply and demand back into equilibrium.

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Economic Equilibrium

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