Final answer:
Market equilibrium occurs at the intersection of the supply and demand curves, representing the equilibrium price and quantity. Changes in demand or supply lead to shifts in these curves and cause the market to reach a new equilibrium. For example, an increase in demand or a decrease in supply generally raises the equilibrium price.
Step-by-step explanation:
The concept of market equilibrium occurs when the quantity of a commodity that consumers are willing to buy equals the quantity that producers are willing to sell at a certain price. This is represented by the intersection of the supply curve (S) and the demand curve (D) on a graph, at which the equilibrium price (Pe) and equilibrium quantity (Qe) are established.
When demand increases and supply remains the same, the demand curve shifts to the right. This results in a higher equilibrium price and quantity. Conversely, when supply decreases and demand remains the same, the supply curve shifts to the left, leading to a higher equilibrium price but a lower equilibrium quantity. If both demand and supply increase by an equal amount, both curves shift to the right. This typically results in a higher equilibrium quantity, but the equilibrium price may not change significantly, depending on the elasticity of demand and supply.
Through this analysis, we can see how various events affect market equilibrium, shifting the demand or supply curves and establishing a new equilibrium price and quantity.