11. Market equilibrium and disequilibrium The following graph shows the monthly

Question

11. Market equilibrium and disequilibrium The following graph shows the monthly demand and supply curves in the market for calendars. Use the graph input tool to help you answer the following questions. Enter an amount into the Price field to see the quantity demanded and quantity supplied at that price. You will not be graded on any changes you make to this graph. Graph Input Tool Market for Calendars 100 90 80 70 60 50 40 u 30 20 10 Price Dollars per calendar 40 Supply uantit eman Quantity Supplied Calendars) 300 125 (Calendars) 50 100 150 200 250 300 350 400 450 500 QUANTITY (Calendars)

Explanation / Answer

The demand for good is an inverse relationship between price and quantity. The graphical relationship between price and quantity demanded is depicted by the demand curve. Any point on the demand curve shows the quantity consumer demands for any particular price.

The supply for good is the direct relationship between price and quantity. The graphical relationship between price and quantity supplied is depicted by the supply curve. Any point on the supply curve shows the quantity producers supply for any particular price.

The equilibrium is the point at which the quantity demanded by the consumer equals the quantity supplied by the producers at a particular price. It is the point of intersection between demand and supply curve.

Then if the market price is above $50 threre will be excess supply and surplus will result and if the price is below $50 there will be excess demand and shortages will result. The disequilibrium in the market puts down or upward pressure to price to move the market towards equilibrium. In time of shortage, some buyers will be willing to pay more than market price to aquire the good. This will bid price high up towards equilibrium. In case of surpls the producers will willing to supply at lower price to clear their inventory. The shortages or surplus is the gap between quantity demanded and supplied in a particular price.

These facts are summarized in the table below

Price Shortage/Surplus Quantity demanded Quantity Supplied Shortage or surplus amount Pressure 40 Shortage 300 125 175 Up 60 Surplus 200 375 175 Down

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