Economics

Market Equilibrium

Question:

What will happen if the price prevailing in the market is
(i) Above the equilibrium price?
(ii) Below the equilibrium price?
[6 Marks] Or
How price and quantity are determined in the market when number of firms are fixed? Or
How is equilibrium price of a commodity determined? (Use diagram).
[CBSE 2004C; AI 07, 09] Or
Explain why equilibrium price is determined at the level of output at which its demand is equal to its supply. [CBSE 2010C]
Or
How will equilibrium price be reached when there is excess demand/excess supply? Explain with diagram. [CBSE 2004, 07; AI 2004] Or
With the help of a suitable diagram, explain the process of determination of equilibrium price of a commodity under perfectly competitive market.
[CBSE Sample Paper 2003] Or
Market for a good is in equilibrium. Explain the chain of reactions in the market if the price is
(i) higher than equilibrium price and
(ii) lower than equilibrium price. [AI 2012]

Answer:

Market equilibrium refers to that point which has come to be established under a given condition of demand and supply and has a tendency to stick to that level, i.e. where Demand = Supply.
If due to some disturbance we divert from our position the economic forces will work in such a manner that it could be driven back to its original position, i.e., where Demand = Supply. In short it is the position of rest.
It can be explained with the help of following schedule and diagram:
(a) • In the below schedule market equilibrium is determined at Price 3 where Market demand is equal to Market Supply.
• At price 1 and 2, there is excess demand, which leads to rise in price, resulting tendency is expansion in supply.
• Similarly, at price 4 and 5, there is excess supply, which leads to fall in price, resulting tendency is Contraction in supply.

(b) • In the given diagram, price is measured on vertical axis, whereas quantity demanded and supply is measured on horizontal axis.

• Suppose that initially the price in the market is P1. At this price, the consumer demand P1B and the producer supply P1A, i.e. consumers want more than what the producer are willing to supply. There is excess demand equal to AB. So, price cannot stay on P1 as excess demand will create competition among the buyers and push the price up till we reach equilibrium. Due to rise in price from P1 to P, there is upward movement along the supply curve (expansion in supply) from A to E and upward movement along the demand curve (contraction in demand) from B to E.
• Similarly, at price P2, the quantity demanded P2K is less than the quantity supplied P2L. There is excess supply, equal to KL, which will create competition among the sellers and lower the price. The price will keep falling as long as there is an excess supply.
Due to fall in price from P2 to P there is downward movement along the supply curve (contraction in supply) from L to E and downward movement along the demand curve (expansion in demand) from K to E.
• The situation of zero excess demand and zero excess supply defines market equilibrium (E). Alternatively, it is defined by the equality between quantity demanded and quantity supplied. The price P is called equilibrium price and quantity Q is called equilibrium quantity.

Questions and Answers

Market Equilibrium

Q 1.

Excess Supply

Answer

Q 2.

How will an increase in the income of buyers of an â€˜inferior goods', affect its equilibrium price and equilibrium quantity? Explain with the help of a diagram. [CBSE 2006]

Answer

Q 3.

Determination of Equilibrium Price Under Perfect Competition

Answer

Q 4.

When do you say there is excess demand for a commodity in the market?

Answer

Q 5.

Explain why an equilibrium price of a commodity is determined at that level of output at which its demand equals its supply.

Answer

Q 6.

With the help of demand and supply schedule, explain the meaning of excess demand and its effects on price of a commodity. (All India 2009)

Answer

Q 7.

What would be an effect on equilibrium price and quantity when demand and supply both increase at the same rate? [CBSE 08, 08C] Or
Explain with the help of a diagram a situation when demand and supply curves shift to the right but equilibrium price remains the same.
[AI 2007] Or
Market for a good is in equilibrium. What is the effect on equilibrium price and quantity if both the market demand and the market supply of the goods increase in the same proportion? Use diagram. [CBSE 2008]

Answer

Q 8.

When do you say there is excess supply for a commodity in the market?

Answer

Q 9.

State whether the following statement is true or false. Give reason.

When equilibrium price of a good is less than its market price, there will be competition among the sellers.

Answer

Q 10.

What is the Equilibrium Price and Equilibrium Quantity?

Answer

Q 11.

With the help of diagram, explain the effects of decrease in demand of a commodity on its equilibrium price and quantity. (Delhi 2009)

Answer

Q 12.

For a non-viable industry where does the supply curve lie relative to demand curve?

Answer

Q 13.

Effects of Change in Demand On Equilibrium Increase in demand will shift the demand curve to the right keeping supply constant, it will lead to increase in equilibrium price and quantity and vice-versa . However,

Answer

Q 14.

At a given price of a commodity, there is an excess supply. Is it an equilibrium price? If not, how will an equilibrium price be reached? Use diagram.(Compartment 2014; All India 2006)

What is ‘excess supply of a good in a market? Explain its chain of effects on the market for that good. Use diagram. (Foreign, 2014)

Answer

Q 15.

Market for a good is in an equilibrium. There is simultaneous decrease both in demand and supply, but there is no change in market price. Explain with the help of a schedule, how is it possible.(All India 2012)

Answer

Q 16.

Explain market equilibrium.

Answer

Q 17.

Market for a product is in equilibrium. Demand for the product decreases. Explain the chain of effects of this change till the market again reaches equilibrium. Use diagram.(Delhi 2014, All India 2014)

Answer

Q 18.

What happens to equilibrium price of a commodity if there is â€˜decrease' in its demand and increase' in its supply?

Answer

Q 19.

How does an equilibrium price of a normal commodity change when income of its buyers falls? Explain the chain of effects. (All India 2010)

A product market is in an equilibrium. Suppose the demand for the product decreases. What changes will take place in the market? Use diagram. (Delhi 2006 C)

Answer

Q 20.

How will an increase in an income of the buyers of an inferior good, affect its equilibrium price and equilibrium quantity? Explain with the help of a diagram.(All India 2006)

Answer

Q 21.

When do we say there is excess demand for a commodity in the market?

Answer

Q 22.

Give the meaning of equilibrium quantity.

Answer

Q 23.

Under what condition increase in demand would not make any effect on equilibrium quantity?

Answer

Q 24.

Explain the changes that will take place when in a market the demand for a good is greater than supply at the prevailing price. (Delhi 2010 c)

Answer

Q 25.

What would be an effect on equilibrium price and quantity when demand and supply both shifts rightward?
Or
What would be an effect on equilibrium price and quantity when there is simultaneous increase in demand and supply? [AI 2008] Or
"If the demand and supply of a commodity both increase, the equilibrium price may not change, may increase, may decrease."Explain using diagrams.
Or [CBSE Sample Paper 2003]
Market for a good is in equilibrium. There is simultaneous "increase"both in demand and supply of the good. Explain its effect on market price. [CBSE 2012]

Answer

Q 26.

When do you say there is excess supply for a commodity in the market?

Answer

Q 27.

What happens to equilibrium price of a commodity if there is an â€˜increase' in its demand and decrease' in its supply?

Answer

Q 28.

If at a given price of the commodity there is excess supply, how will the equilibrium price be reached? Explain with the help of a diagram.
Or [CBSE 2004] How will equilibrium price be reached when there is excess supply? Explain with a diagram.
Or [CBSE 04, 06C, 07C]
Explain the series of changes that will take place if market price is higher than equilibrium price.
Or [CBSE 2011C alternative]
At a given price of a commodity there is excess supply. Is it an equilibrium price? If not, how will the equilibrium price be reached? (use diagram)
Or [CBSE 2006] Suppose price of a good is higher than equilibrium price. Explain changes that will establish equilibrium supply.
[CBSE 09]

Answer

Q 29.

Market for a good is in equilibrium. There is decrease in demand for this good. Explain the chain of effects of this change. Use diagram.
Or
How will equilibrium price and quantity be affected when there is decrease in demand? Explain with diagram. [CBSE 04C, 06C, 09]
Or
How will equilibrium price and quantity be affected when there is leftward shift of demand curve?
Or [AI 2004]
Explain the chain effects on demand, supply and price caused by leftward shift of demand curve.
Or [CBSE 2005 C] Market for a good is in equilibrium. The demand for the good â€˜decreases'. Explain the chain of effects of this change. [CBSE 2015 Set(2)]

Answer

Q 30.

What is excess demand for a good in a market? Explain its chain of effects on the market for that good use diagram.(Foreign, 2014)

Answer

Q 31.

Market of a commodity is in equilibrium. Demand for the commodity ‘increases.’ Explain the chain of effects of this change till the market again reaches equilibrium. Use diagram. (Delhi 2014; All India 2014)

Answer

Q 32.

Using supply and demand curves, show how an increase in the price of shoes affects the price of a pair of socks and the number of pairs of socks bought and sold.
Or
How will a rise in price of complementary affect the equilibrium price of given commodity? Explain the chain of effects.

Answer

Q 33.

Explain the effects of a â€˜price floor'. [CBSE Sample Paper 2014] Or
What are the effects of â€˜price – floor' (minimum price ceiling) on the market of a good? Use diagram.

Answer

Q 34.

Market for a good is in equilibrium. There is increase in demand for goods. Explain the chain of effects of this change. Use diagram.
Or [CBSE 2011] How does an increase in demand of a commodity affect its equilibrium price and equilibrium quantity? Explain with the help of a diagram.
Or ‘ [CBSE 2005]
How will equilibrium price and quantity be affected when there is rightward shift of demand curve? [CBSE 2004, 07C; AI 05]

Answer

Q 35.

What would be an effect on equilibrium price and equilibrium quantity if demand and supply both fall at the same rate?
Or
Market for a good is in equilibrium. There is simultaneous "decrease"both in demand and supply but there is no change in market price. Explain with the help of a schedule how is it possible. [AI 2012]

Answer

Q 36.

Give the meaning of equilibrium. (All India 2009 c)

Answer

Q 37.

Define equilibrium price. (All India 2008,2006)

Answer

Q 38.

Market for a good is m equilibrium. There is simultaneous increase both in demand and supply of the good. Explain its effects on market price.(Delhi 2012; All India 2008)

Answer

Q 39.

Give the meaning of equilibrium price.

Answer

Q 40.

Assumptions of Equilibrium

Answer

Q 41.

Effects of a Simultaneous Change in Demand and Supply on Equilibrium Price and Quantity

Answer

Q 42.

Market for a good is in equilibrium. There is increase in supply for this goods. Explain the = chain of effects of this change. Use diagram.
[AI2011]
Or
How will equilibrium price and quantity be affected when there is increase in supply?
Or [AI 2005]
Explain the chain effect of increase in supply of a good on its price, supply and demand. Use diagram. [CBSE 05]
Or
How does an increase in supply of a commodity affect its equilibrium price and equilibrium quantity? Explain with the help of a diagram.
[CBSE 2005, OS] Or
Market for a good is in equilibrium. Supply of the good â€˜increases'. Explain the chain of effects of this change. [CBSE 2015, AI 2015]

Answer

Q 43.

How is an equilibrium price of a commodity affected by a leftward shift of the demand curve? Explain it with the help of a diagram. (All India 2007)

Answer

Q 44.

Effects of Change in Supply On Equilibrium When there is change in supply, keeping demand constant, it will shift supply curve to the right. When supply increases it leads to fall in equilibrium price and rise in quantity, on the other hand, when supply decreases, supply curve will shift to the left, causing rise in price and fall in quantity. However,

Answer

Q 45.

Market for good is an equilibrium.Explain the chain of reactions in the market if the price is(i) Higher than an equilibrium price (ii) Lower than an equilibrium price (All India 2012)

Answer

Q 46.

Answer

Q 47.

What is equilibrium point?

Answer

Q 48.

Explain the sequence of changes that will take place when there is excess demand of the commodity.(All India 2011)

At a given price, there is an excess demand for a good. Explain how the equilibrium price will be reached. (Delhi 2007)

Answer

Q 49.

Give reasons for the following statements:

A decrease in supply will not result in a change in equilibrium quantity if the demand for a commodity is perfectly inelastic.
An decrease in supply will not result in a change in equilibrium price if the demand for a commodity is perfectly elastic.

Answer

Q 50.

Explain the effects of a price ceiling'. [CBSE Sample Paper 2014] Or Explain the effects of maximum price ceiling' on the market of a good. Use diagram. [CBSE 2015]

Answer