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5. The main subjects of the market and the mechanism of competitive establishment of an equilibrium price
Equilibrium price - the price in a competitive market at which the quantity of goods and services that consumers are willing to buy absolutely corresponds to the quantity of goods and services that producers are willing to offer.
At the equilibrium price:
▪ price at which supply and demand are equal to each other;
▪ price at which there is neither a shortage nor an excess of goods and services;
▪ a price that does not show an upward or downward trend.
Competition is the driving force behind the market. Competition and fluctuations in supply and demand led to the establishment of price equilibrium in the market. It is important that prices in the market are in constant motion due to changes in the supply or demand of goods. These changes are interrelated. Each change in the price of one good leads to changes in the price of other goods. There is a whole system of prices that can be in equilibrium if we consider it at a certain moment and simultaneously in its totality. In this case, we talk about the general equilibrium of the market. At the equilibrium point, economic movement stops. In order for it to start again, external conditions, price levels, technology, expectations and preferences of producers or consumers must change.
It is competition that drives firms to switch to the most efficient production technologies. In a competitive market, the inability of some firms to use the most economical production technology ultimately means their elimination by other competing firms that use the most efficient production methods.
Participants in market transactions can also exchange at non-equilibrium prices, since they do not know the equilibrium ones. In this case, there is a shortage or surplus in the market, and the participants in the exchange, finding that their desires, represented by the corresponding supply and demand functions, turn out to be unattainable.
The market is the scene three main economic actors:
1) the state - the subject of its purchase, are: goods for public and state use. The subject of sale, in turn, is the services of state organizations and institutions, land, natural resources, housing, licenses;
2) enterprises - the subject of their purchase: labor, land, natural resources, raw materials, semi-finished products, goods, money, securities. Subject of sale: goods, services, their property values, intellectual property;
3) households - the subject of purchase: consumer goods, services, property values, and the subject of sale - labor, property values, goods and services.
Author: Ilyina V.N.
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