Test: Market Equilibrium - 1

At equilibrium price quantity demanded and quantity supplied of a commodity are equal. This quantity is called the equilibrium quantity of the commodity. In practical life, the price at which the seller/firm wants to sell a commodity, its quantity supplied may be greater or lesser than its quantity demanded.

Factors that can shift the demand curve for goods and services, causing a different quantity to be demanded at any given price, include changes in tastes, population, income, prices of substitute or complement goods, and expectations about future conditions and prices.

Excess demand refers to the situation when aggregate demand (AD) is more than the aggregate supply (AS) corresponding to full employment level of output in the economy. It is the excess of anticipated expenditure over the value of full employment output.

Deficient demand refers to the situation when aggregate demand is short of aggregate supply corresponding to full employment level in the economy. Aggregate supply being perfectly elastic, it converges with aggregate demand at a lower level of output lower than the full employment level of output in the economy

Excess Demand. When at the current price level, the quantity demanded is more than quantity supplied, a situation of excess demand is said to arise in the market. Excess demand occurs at a price less than the equilibrium price.

In case of excess demand, the demand of a commodity is more than its supply. SO in this case, there will be competition among consumers and every consumer tries to purchase more of a commodity by paying higher prices. This will tend price to rise.

Hence a) Market price rise

Deficient demand refers to the situation when aggregate demand (AD) is less than the aggregate supply (AS) corresponding to full employment level of output in the economy. The situation of deficient demand arises when planned aggregate expenditure falls short of aggregate supply at the full employment level.

When at the current price level, the quantity demanded is more than quantity supplied, a situation of excess demand is said to arise in the market. Excess demand occurs at a price less than the equilibrium price.