What is Equilibrium Quantity?
If there's no shortage or surplus of a commodity, it is said to be in Equilibrium Quantity. It's also the quantity wherein supply and demand curves intersect on a supply-demand diagram. Because there's no shortage or surplus of products available in the market, it would seem to be in an equilibrium state.
Understanding Equilibrium Quantity
When the number of consumer demand matches the number of sellers willing and able to supply, the forces of demand and supply are in proportion or equilibrium. Here, the quantity refers to equilibrium quality. A supply and demand figure or diagram shows how an industry reaches a quantity and price equilibrium.
The concept of equilibrium quantity is an element of generic economic models of supply and demand, markets dynamics, and macroeconomic variables in a wider context.
The equilibrium quantity theory seems more of a conceptual model than a real market. It's doubtful that there will ever be a phase or a market rate where supply and demand are perfectly aligned and equal. However, the idea is helpful for analyzing how supply and demand connect, as well as how the markets work to ensure that things are priced efficiently.
Practical Example
BRB manufactures 40,000 smartphones every year at $30 each. However, it finds that at that price point, users purchase almost all of its existing smartphones, and the supply of smartphones is emptied before the end of the year.
The firm doubles its annual manufacturing volume to 70,000 smartphones in response to high customer demands and the purchase price to $40. At the end of the year, the corporation is left with an overstock of unsold smartphones.
Resetting the market dynamics, the firm manufactures 60,000 smartphones the next year, with a selling value of $35. The company sold all its smartphones by the end of the year. It suggests that at a selling value of $35, the equilibrium quantity of smartphones is 60,000 which also indicates the equilibrium price.
In Sentences
- The supply and demand curves follow opposing paths before gradually intersecting, leading to market equilibrium and an equilibrium quantity.