Why do businesses seek an equilibrium price
Businesses seek an equilibrium price because it allows them to maximize their profits and maintain a stable market. The equilibrium price is the price at which the quantity demanded by consumers matches the quantity supplied by producers.
When a business sets a price below the equilibrium, demand exceeds supply, leading to a shortage. In this situation, businesses may lose potential sales and revenue, as consumers are willing to pay more for the product or service.
On the other hand, if a business sets a price above the equilibrium, supply exceeds demand, resulting in a surplus. This can lead to excess inventory and potential losses for the business.
By seeking the equilibrium price, businesses can ensure that they are selling their products or services at a price that maximizes both consumer demand and their own profits. This helps them achieve a balance between supply and demand, leading to a stable market environment.