This a MCQ (Multiple Choice Question) based practice test of Chapter 5...
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.
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This a MCQ (Multiple Choice Question) based practice test of Chapter 5...
Explanation:
Equilibrium price is the price at which the demand for a commodity is equal to its supply. It is determined by the interaction of demand and supply in the market. At equilibrium price, the quantity demanded by consumers is exactly equal to the quantity supplied by producers.
Demand:
- Demand refers to the quantity of a commodity that consumers are willing and able to purchase at various prices during a given time period, ceteris paribus.
- The law of demand states that there is an inverse relationship between the price of a commodity and the quantity demanded, ceteris paribus.
- When the price of a commodity decreases, the quantity demanded increases, and vice versa.
Supply:
- Supply refers to the quantity of a commodity that producers are willing and able to offer for sale at various prices during a given time period, ceteris paribus.
- The law of supply states that there is a direct relationship between the price of a commodity and the quantity supplied, ceteris paribus.
- When the price of a commodity increases, the quantity supplied also increases, and vice versa.
Market equilibrium:
- Market equilibrium occurs when the quantity demanded is equal to the quantity supplied at a particular price.
- At any price below the equilibrium price, there will be excess demand or a shortage in the market. This will lead to upward pressure on the price as consumers compete to buy the limited quantity available.
- At any price above the equilibrium price, there will be excess supply or a surplus in the market. This will lead to downward pressure on the price as producers compete to sell their excess quantity.
Determination of equilibrium price:
- The equilibrium price is determined through the interaction of demand and supply curves.
- The point where the demand curve intersects the supply curve represents the equilibrium price.
- At this price, the quantity demanded equals the quantity supplied, and there is no tendency for the price to change.
In conclusion, the equilibrium price is the price at which the demand for a commodity is equal to its supply. It is determined by the interaction of demand and supply in the market. At equilibrium price, the quantity demanded by consumers is exactly equal to the quantity supplied by producers.
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