Question

Supply and Demand Curves and the Point of Equilibrium! Prepare three paragraphs of 6 to 7 sentences each that describe your understanding of how the points on the curve differ from the curve moving to the right or to the left and the significance of the Point of Equilibrium pricing!

Answer 1

The point of Equilibrium is a point supply is equal to demand i.e the supply function and demand function intersect.

The equilibrium price is the market price where quantity of goods supplied is equal to demand of goods. For suppliers a price below equilibrium means charging less than the current market demand. The market demand will exceed the supply in this case and the supplier will run out of stock . If price charged more than the equilibrium price it means price is exceeding the current market price which could lead to decrease in demand. It is important to maintain a equilibrium price to sustain in long run. It is also known as the market clearing price. It also state that both the demand and supply forces are operating in harmony at the equilibrium price.

Movement along the curve :-

The movement along the demand curve implies that the relation is consistent i.e quantity demanded changes only when price is change and vice versa. Similarly movement along the supply curve implies the consistent relationship i.e change in quantity supplied is caused by change in price.

Shift in demand and supply curve :-

The shift in demand and supply curve take place when there is change in factors other than price like substitute goods, complementary goods, income , etc.

1. Demand curve shift to the right :- a). increase in income b). a increase in price of substitute good c). fall in price of complimentary good d). increase in number of potential buyers e). when price is expected to rise in future.

2. Demand curve shift to the left :- a). decease in income b). decrease in the price of substitute goods c). rise in price of complimentary good d). decrease in number of potential buyers e). when price is expected to fall in future.

3. Supply curve shift to the right :-a). cost of production decreases b). increase in technology c). a change in expectation that increases the supply d). increase in the number of sellers

4. Supply curve shift to the left :- a). cost of production increaes b). a change in expectation that decreases the supply c). decrease in the number of sellers d). decrease in input prices