Market Equilibrium fixed number of firms is a scenario when the market for a certain product or service reaches a constant and balanced. The number of businesses present in this scenario remains constant and does not change over time.
Let's look at an illustration of a market with a predetermined number of pizza shops to help make things clearer. When the total number of pizzas produced by these five businesses matches exactly the total number of pizzas that local customers want to buy, market equilibrium will occur in a territory with five pizza shops that make and sell pizzas to customers. When this occurs, all of the pizzas made are consumed, leaving no leftover pizzas or disgruntled customers.Demand:
The quantity of a product or service that customers are willing and able to purchase at different price points within a specific time period is referred to as demand. Buyers frequently desire more things as prices fall, while rising costs tend to dampen consumer demand. Demand is also driven by other variables, including customer tastes, income levels, and the accessibility of alternatives.Supply:
On the other hand, supply reveals how much of an item or service manufacturers are willing and able to deliver to the market at different price points at the same time. Manufacturers are obliged to manufacture more items as prices rise in order to benefit from greater profits, while lower prices may result in reduced output.The Relationship with Market Equilibrium:
Market equilibrium arises at the point where the quantity demanded by consumers equals the quantity supplied by producers. This balance occurs naturally through the interplay of demand and supply forces in the market. When the demand for a product exceeds its supply at a given price, a shortage occurs. In response, suppliers may raise prices to capitalize on increased demand, leading to a reduced quantity demanded and an eventual movement toward equilibrium. Conversely, if the supply of a product exceeds its demand at a particular price, a surplus emerges. To clear this surplus, suppliers may lower prices to stimulate more consumer demand, resulting in an eventual movement towards equilibrium.