Equilibrium Price (part three in pricing!)

Commitment FAIL!  At least there's no one here to hold me accountable..  I'd still better make up for it though.  Fun!  (really!)  By the way, I'm getting rid of the formal definitions in these blogs; hopefully you, the nonexistent viewer, won't be inconvenienced by it..  Anyway, here's the final post in the three-part pricing series, and it's the most important part, since we can actually see it in day-to-day terms!

Definition:  The equilibrium price is the intersection point between the Supply and Demand curves when you plot them on the same graph.  The way that translates in the real world is the actual price of whatever it is that we're analyzing with such complex mathematical tools (hopefully we can both agree that they're not really that complex).  When you think about it, it's essentially a compromise between a consumer, who wants everything to be incredibly cheap, and the producer, who wants to sell incredibly expensively.  If either party dominates, naturally one of them will lose, and that's bad for business!


MOAR:

• Since Equilibrium Price depends completely on the supply and demand curves, a shift of either curve (moving one of the actual curves left or right) will affect the compromise.

• An increase (shift to the right) in Supply will push the equilibrium price down, and the number of products sold will go up as well
• That means that the producer will make more of something for a cheaper price, which will also attract more consumers looking for a deal
• Thus, a decrease in Supply will push the Price up, and following the logic above, it will also lower the number of products sold.
• Increase in Demand (right shift) will push the price and quantity sold up together
• Assuming that the supplier catches on to the bucking trend, they know that more Demand means more people who will buy the product at an even higher price
• Vice versa for a decrease in demand; Suppliers will lower prices to compensate for a loss of interest
• Since in the real world Supply and Demand are constantly changing due to the constantly changing human psyche, Producers can almost never set their prices to the exact Equilibrium Price.
• But since following the concepts will let them maximize benefit for everyone, it is their goal to set prices as close to the equilibrium as possible.