What is Economic Equilibrium?

Introduction

Previously I talked about supply and demand. In short, supply is how much of a good is being offered on the market. Demand is how many people want to buy that good. Equilibrium will tell you in a market where the price is going to end up.

Equilibrium

Think of a chart with 2 axes. The vertical axis is price; the horizontal axis is quantity. Supply is a line that slopes up. The higher the price, the more the quantity supplied. Demand is a line that slopes down. The lower the price, the more the quantity demanded. Where the 2 lines intersect is the equilibrium point, which states the price and quantity that the market is going to settle on.

Example 1

Let’s say the price of item A is really low. As a result everyone wants to buy it (high demand), but very few people want to sell it due to low profit margin (low supply). The buyers would compete over the limited supply and the price would be bid up. As a result of the bid up, more suppliers enter the market in search of profit.

Example 2

Let’s say the price of item A is really high. As a result very few people wants to buy it (low demand), but many people want to sell it due to high profit margin (high supply). The sellers would compete over the limited demand and the price would be driven down. As a result of the falling price, more buyers enter the market in search of a discount. In both example 1 and 2 there is downward pressure and upward pressure. Where that pressure is balanced is the equilibrium point.

Curve Shift

Let’s say a celebrity says item A is the best thing ever. That would shift the demand curve up, for at every possible price, people want more of it. Let’s say suppliers of item A find a way to make it cheaper. That would shift the supply curve down for they would be willing to supply item A at a lower price, which as mentioned earlier would have positive effects on demand.


Fee Structure

Rate Assets Under Management
1.44% Below $125,000
1.00% Between $125,000 and $750,000
.85% Between $750,000 and $1,250,000
.80% Between $1,250,000 and $1,750,000
.75% Between $1,750,000 and $2,500,000
.70% Between $2,500,000 and $3,250,000
.65% Between $3,250,000 and $4,250,000
.60% Above $4,250,000

A single rate is applied to the entire account. So a person with a $750,000.01 account pays less than a person with a $750,000 account. I will waive personal tax return fees for accounts over $1 million. For accounts that are above $5,250,000, we’ll need to discuss a custom rate.


As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. If you would like to submit a post to my blog, please contact me.

If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.

E-Book Download

Questions for the comments

Did my explanation make sense? Do you agree or disagree with what I said?

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