Question

Q3. WHAT IS MARKET EQUILIBRIUM? MARKET SURPLUS? MARKET SHORTAGE? ANSWER ALL THREE QUESTIONS AND GIVE YOUR ANSWER IN 5 BULLET POINTS WITH COMPLETE EXPLANATIONS, DIAGRAMS (IF NECESSARY) AND EXAMPLES | EACH BULLET POINT CARRIES 1 MARK = 5 MARKS

Answer 1

1.

• Market equilibrium is created when demand and supply curve intersect with each other
• In ghis condition the deadweight loss to the society is zero
• the price corresponding to equilibrium is called equilibrium price and quantity corresponding to equilibrium is called equilibrium quantity

2.

• Market surplus is a sum of consumer surplus and producer surplus
• consumer surplus is the difference of what consumers willing to pay and they what they actually pay
• producer surplus is the difference of what sellers willing to accept and what they actually accept from the market
• total surplus is maximized when demand and supply is in the equilbrium

3

• A shotage is a condition which is created below equilibrium
• in shortage the demand is greater than the supply in the market
• so for making a balance the price has to be move upwards to the equilibrium or to be increase
• opposite to it is surplus in which the supply is greater than the demand