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In: Economics

Q3. WHAT IS MARKET EQUILIBRIUM? MARKET SURPLUS? MARKET SHORTAGE? ANSWER ALL THREE QUESTIONS AND GIVE YOUR...

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

Solutions

Expert Solution

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


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