explain using a supply and demand curve diagram how equilibrium is achieved in a typical market....
explain using a supply and demand curve diagram how equilibrium is achieved in a typical market. What will happen in this typical market should the price that prevails is higher than the market price, and what if the price is lower?
Homework Answers
The equilibrium is achieved when the demand is equal to the supply in the market. It occurs when the demand curve intersects the supply curve. The equilibrium point 'e' is represented in the diagram below:
The demand curve intersects the supply curve at point 'e' which is the point of equilibrium. The equilibrium price is P and the equilibrium quantity is Q.
Price greater than P is taken as P'' and the price less than P is taken as P' in this case.
When the market price is more than the equilibrium price then the quantity supplied is Q'' and the quantity demanded is Q'. The quantity supplied exceeds the quantity demanded by Q'' - Q' and there is surplus in the market.
Similarly, when the market price is less than the equilibrium price then the quantity supplied is Q' and the quantity demanded is Q''. The quantity demanded exceeds the quantity supplied by Q'' - Q' and there is shortage in the market.
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explain using a supply and demand curve diagram how equilibrium
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