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MOD 2 e

Market equilibrium occurs when the quantity demanded equals the quantity supplied at a specific price, known as the equilibrium price. Disequilibrium can arise from surpluses or shortages, prompting market forces to adjust prices towards equilibrium. The document also includes numerical exercises demonstrating how to calculate equilibrium price and quantity using demand and supply functions.

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Diksha
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11 views3 pages

MOD 2 e

Market equilibrium occurs when the quantity demanded equals the quantity supplied at a specific price, known as the equilibrium price. Disequilibrium can arise from surpluses or shortages, prompting market forces to adjust prices towards equilibrium. The document also includes numerical exercises demonstrating how to calculate equilibrium price and quantity using demand and supply functions.

Uploaded by

Diksha
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Market Equilibrium: Equilibrium Price and Quantity

Equilibrium- A system is in equilibrium when there is no tendency for it to change.

The market equilibrium occurs when all buyers and sellers are satisfied with their respective
quantities at the market price.

The equilibrium price is the price at which the supply and demand curves intersect.

The equilibrium quantity is the quantity at which the supply and demand curves intersect.

Graphical Illustration of Equilibrium situation with the help of demand and supply curve

Equilibrium is achieved at the price at which quantities demanded and supplied are equal.

Example: - PX QdX QsX

500 30 56

400 40 50

300 45 45

200 55 35

100 70 20

If the market is in equilibrium, the price will not change unless an external factor change the
supply or demand, which results in the disruption of the equilibrium.
Disequilibrium

Whenever markets experience imbalances—creating disequilibrium prices, surpluses, and


shortages—market forces drive prices toward equilibrium.
A surplus exists when the price is above equilibrium, which encourages sellers to lower their
prices to eliminate the surplus.
A shortage will exist at any price below equilibrium, which leads to the price of the good
increasing.

In the figure, if the market price is above the equilibrium price (i.e.1.40) then there is an excess
supply. Similarly, if the market price is below the equilibrium value, then there is excess
demand

Numerical exercises:-

Q1. Given the demand function as Qd= 14-2p........... (i)

Supply function as Qs=2+4p.................... (ii)

Calculate the equilibrium price and quantity.

Answer- 14-2p =2+4p

14-2=4p+2p

12=6p

p=2

Putting the value of P equation 1

Qd= 14-2p

Q= 14- 2(2)
Q= 14-4=10

Q2. Given the demand function as Qd= -2p+300 ........... (i)

Supply function as Qs= 4p-120 ....................(ii)

Calculate the equilibrium price and quantity.

Answer: -2p+300=4p-120

300+120 = 4p+2p

420 = 6p

P=70

Putting the value of P equation 1

Q= -2 (70)+300

Q = -140+300

Q= 300-140 =160

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