Equilibrium

When the quantity demanded and quantity supplied are the same, then equilibrium will be formed. Although at sometimes that the demand and supply do not meet the equilibrium point, but due to occurrence of the market failure, then price adjustment will take place. For example, if OldTown White Coffee raises their coffee mix’s price, and it is over the consumer’s buying power, then a surplus will occur as quantity demanded is less than the quantity supplied. Thus, they have to lower their price to the equilibrium price and equilibrium quantity in order to avoid any economic loss.

Graph 6: Surplus occurrence in the market(n.d.)

When a shortage occurs, that means the quantity demanded is more than quantity supplied. In another words, there are not enough goods produced. When the price of coffee mix is low, consequently it will attract many consumers to demand more for coffee mix. But OldTown White Coffee has limited goods produced. Therefore, they will increase the price of coffee mix until the equilibrium price, and then shortage is cancelled off. In this case, equilibrium happens again after adjusting the prices and the market is efficiency.