Equilibrium Price — Flashcards

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Equilibrium price is the price at which consumers are willing to buy the same quantity of a good that producers are willing to sell. At this price, quantity demanded equals quantity supplied, so the m…

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Market equilibrium is the state of the market when demand for a good is equal to its supply. In this situation, there is neither excess demand nor excess supply.

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Marshall explained that both demand and supply are needed to determine price, just as both blades of scissors are needed to cut cloth. Demand alone cannot fix price, and supply alone cannot fix price.

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The market of a good consists of demand, supply, and market equilibrium. Demand shows consumer behaviour, supply shows producer behaviour, and market equilibrium coordinates the two sides.

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A consumer is willing to pay a maximum price equal to marginal utility. A producer is prepared to accept a minimum price equal to marginal cost of production. Market price forms between these two limi…

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At price ₹4 per unit, demand and supply of X are equal at 50 units each. This is the equilibrium price and equilibrium quantity.

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At price ₹3 per unit, demand is 60 units and supply is 40 units. Demand exceeds supply, so there is excess demand. This pushes price upward toward equilibrium.

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At price ₹5 per unit, demand is 40 units and supply is 60 units. Supply exceeds demand, so there is excess supply. This pushes price downward toward equilibrium.