Equilibrium in the Market

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As with all markets and their respective economies, having equilibrium is one of the key factors of a successful system. Although most markets do not reach equilibrium, they attempt at getting close. There are numerous methods devised to reach equilibrium, whether they involve human intervention directly or a cumulative decision by all factors involved. These factors may be a seller's willingness to lower overall revenue, or a buyer's willingness to withhold some demand for a certain product. Of course, the basics of supply and demand retrospectively control the equilibrium in the market.

Supply and demand is one of the most simple-looking aspects of an economy and its study, but yet it presents the greatest challenge to analysts. Although most events can be mathematically calculated to perfection, the human aspect always intervenes and throws off a calculation. Dealing with the imperfections of psychology differentiates a modern analyst with initiative over one who follows an equation.

With supply solely, factors involved with regulation of the supply also control some aspects of demand. Things such as production costs and desired net profit can determine whether a business succeeds or not. Having a balance between quantity and price is the greatest control any business can have. Pricing is obviously one of the most beneficial, or destructive, parts of a business. Pricing is the first and most valuable thing an individual will look at, which will overrule most other judgments based off of quality and detail. Balancing the price, however, helps to create a pristine product, with just the right amount of detail that will fuel the market, while still generating a steady net income.

When dealing with demand, aspects of suppl...

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...trospective revenue of the company, rendering a price floor incapable of increasing revenue, which is the goal from the beginning.

The more common method, and now heavily used one, is to provide subsidy for both the buyer and seller. Subsidy involves refunding a customer part of their payment to provide governmental reassurance in their actions, as well as fuel them to purchase more. Although this causes the seller to lose money initially at the low price, a percentage of the subsidy fund goes towards the seller to continue production. This gives the seller an extra profit, as well as brings customers back to them. The modern solar panel industry is an example, with the government paying for part of the investment. The customers do not pay as much initially for the solar panels, but their references and even repetitive usage generates higher profit for the seller.