Demand Curve And The Supply Curve

2004 Words9 Pages
If we draw a Demand-Supply curve, the point where the demand curve and the supply curve meet is the market equilibrium which is the price at which quantity supplied equals quantity demanded. In this question, the equilibrium price is $20 and equilibrium quantity is 3, here at equilibrium price, the number of sellers and number of buyers are same which is 3, so there is no pressure for price to change. But if it is $24, the quantity demanded is less than the quantity supplied so there will be excess supply exerts downward pressure on price and if it is $16, the quantity demanded is greater than the quantity supplied so there will be excess demand exerts upwards pressure on price. Even if the sellers try to sell the widgets at price other than equilibrium prices the excess supply or excess demand will make the price same as the equilibrium price but we can change the market equilibrium by changing the supply and the demand, there are four case for it Case 1: Increase demand Price Demand Supply New demand (increased) 10 5 0 7 12 4 1 6 16 3 2 5 20 3 3 4 24 2 3 3 29 1 4 3 30 0 5 2 Here when the demand increases the equilibrium price also increases. Case 2: Decrease demand Price Demand Supply New demand (decreased) 10 5 0 3 12 4 1 3 16 3 2 2 20 3 3 1 24 2 3 0 29 1 4 0 30 0 5 0 Here when the demand decreases the equilibrium price also decreases. Case 3: Increase supply Price Demand Supply New supply (increased) 10 5
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