demand will catuse te P 3 Using the following schedule defin

demand will catuse te P 3. Using the following schedule, define the equilibrium price and quantity. Describe the situation at a price of $10. What will occur? Describe the situation at a price of $2. What will occur? Quantity Supplied 100 120 150 200 300 Quantity Demanded Price $ 1 $ 2 $ 3 $ 4 $ 5 500 400 350 320 300 410 500 650 800 975 $ 6 $ 7 275 260 230 200 150 $ 9 $10

Solution

An equilibrium is a situation in which the quantity demanded in the quantity supplied balance each other and the balance is maintained by the price. In this case equilibrium in the market is established when the price is fixed at $5 per unit and we see that the quantity demanded and the quantity supplied both are equal to each other at 300 units. This shows the equilibrium in the market.

When the price is increased to $10 per unit and is maintained at that level, the quantity demanded is 150 units and the quantity supplied is 975 units. Since quantity supplied is greater than quantity demanded we acknowledge that there is an excess supply.

When there is a price of $2 per unit the quantity demanded is greater than the quantity supplied. This indicates that there is an excess demand. These situations of excess supply and excess demand are the reflection of imbalance in the market.