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Market Equilibrium

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

Solution

Suppose demand is greater than supply. Since the buyers will not be able to buy all what they want, there will be competition among the buyers. It will have an upward influence on the price. As a result, demand will start falling and supply starts rising. It will go on till the demand is equal to supply again. If demand is less than supply, the sellers will not be able to sell all what they want, there will be competition among the sellers. It will have a downward influence on the price. As a result, demand will start rising and supply starts falling. It will go on till the demand is equal to supply again. Hence, the equilibrium price of a commodity is determined at that level of output at which its demand equals its supply.

Some More Questions From Market Equilibrium Chapter

Giving reasons, state whether the following statements are true or false.
A monopolist can sell any quantity he likes at a price.

Giving reasons, state whether the following statements are true or false.
When equilibrium price of a good is less than its market price, there will be competition among the sellers. 

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.

Market for a good is in equilibrium. There is simultaneous decrease both in demand and supply of the good. Explain its effect on market price.

Market for a good is in equilibrium. There is an 'increase' in demand for this good. Explain the chain of effects of this change. Use diagram. 

What is minimum price ceiling? Explain its implications.

If the prevailing market price is above the equilibrium price, explain its chain of effects.

The demand of a commodity when measured through the expenditure approach is inelastic. A fall in its price will result in :
(choose the correct alternative)
(a) no change in expenditure on it.
(b) increase in expenditure on it.
(c) decrease in expenditure on it.
(d) any one of the above

As we move along a downward sloping straight line demand curve from left to right, price elasticity of demand : (choose the correct alternative)
(a) remains unchanged
(b) goes on falling
(c) goes on rising
(d) falls initially then rises

Define market demand.

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