Definition of Equilibrium
Equilibrium is a state of balance. In economics, the equilibrium is a point where the supply and demand of a commodity are equal. Assume the following data in a market where the demand for a product is maximum at 50 units when the price is $5. When the price increases gradually, the demand falls and the demand is lowest at a price of $25. As the price increases demand decreases and supply increases.
|
Price |
Demand |
Supply |
|
$5 |
10 |
50 |
|
$10 |
20 |
40 |
|
$15 |
30 |
30 |
|
$20 |
40 |
20 |
|
$25 |
50 |
10 |
The graph plotted below is showing two lines. The blue line is showing the supply that is increasing with the price. The red line is the demand line that is showing a downward slope with an increase in price. The equilibrium point is where the demand curve and supply curve intersect each other. The price is $15 when the supply and demand are both equal.
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