Question

What do economists mean by market equilibrium? Identify the characteristics. Define a shortage and explain what will happen to price if there is a shortage? Why does price change? Define a surplus and explain what will happen to price if there is a surplus. Why does price change?

Answer 1

ANSWER:

Market equilibrium: Market equilibrium is a situation of balacne in an economy. Market equilibrium is a point where quantity demanded is equal to the quantity supplied. The price at which quantity demanded by the consumer is equal to the quantity supplied by the supplier is called the equillibrium price and the quanity is called equilibrium equantity. any change in price causes creates a situation of shortage or surplus in the economy.

Hence market equilibrium is a situation where quantity demaned is equal to the quantity supplied price remaining constant.

Characteristics of market equilibrium:

The are three main characteristics of market equilibrium. These are-

1.) The quanity demanded by the consumer is equal to the quantity supplied by the supplier price remaining constant.

2.) The price at which quantity demaned is equal to the quantity supplied is the equilibrium price.

3.) The quantity at which quantity demaned is equal to quantity supplied is equilibrium quantity.

Defination of shortage - Shortage can be defined as situation where quantity demanded by the consumer is more than the quantity which the supplier is willing to supply at a particular price. In this situation quantity demanded exceeds quantity supply.

To solve this problem of shortage the price will change. The price will change as the market is not at equilibrium because quantity demanded is more than the quantity supplied. So, to equate the quantity demanded and the quantity supplied the price will rise. With the rise in price the quantity demanded will start to fall (as when price rises consumer demand less of that product) and the quantity supplied will start to rise ( as when price rises for suppliers are will to sell the rpoduct).

So, when there is shortage the price will change ( price will start rising).

WHY DOES PRICE CHANGE?

The Market need to be at equilibrium so that both the consumer and the producer are satisfied. As at equilibrium the demand is equal to supply and there is no consumer left whose demand is not satisfied and no supplier is left whose product is not sold.

So, when a situation of shortage arises which means the quantity demanded is more than the quantity supplied (there are more consumers who are not able to buy the product as the supply is less). So, to equilibriate the market the price will change. At the equilibrium both the consumer and the producers are satisfied. and to bring the situation of equilibrium the price will rise so that with rise in price the demand falls and supply rises. the demand will fall and supply will rise till the point where demand becomes equal to the supply again.

Hence, to bring the situation of equilibrium the price changes.

Defination of surplus-  surplus can be defined as situation where quantity supplied by the supplier is more than the quantity which the consumer is willing to buy at a particular price. In this situation quantity supplied exceeds quantity demanded.

To solve this problem of surplus the price will change. The price will change as the market is not at equilibrium because quantity supplied is more than the quantity demaned. So, to equate the quantity supplied and the quantity demanded the price will fall. With the decrease in price the quantity supllied will start to fall (as when price falls producer sell less of that product) and the quantity demaned will start to rise ( as when price falls consumer will tbe willing to buy more of the product).

So, when there is surplus the price will change ( price will start falling).

WHY DOES PRICE CHANGE?

The Market need to be at equilibrium so that both the consumer and the producer are satisfied. As at equilibrium the demand is equal to supply and there is no producer left whose product is not sold and no comsumer is left whose demaned is not satisfied.

So, when a situation of surplus arises which means the quantity supplied is more than the quantity demaned (there are more producers who willing to sell there product as demand is less). So, to equilibriate the market the price will change. At the equilibrium both the consumer and the producers are satisfied. and to bring the situation of equilibrium the price will fall so that with fall in price the supply falls and demand rises. the supply will fall and demand will rise till the point where supply becomes equal to the demand again.

Hence, to bring the situation of equilibrium the price changes.