LESSON 5
.Interaction of supply and demand
.Market Clearing Price (MCP/MCQ [quantity])
- EQUILIBRIUM means a state of equality or balance
between demand & supply.(no excess
demand and
supply). No tendency for price or quantity to change
- DISEQUILIBRIUM means where supply and
demand are out of balance (/are not equal)
- The interaction of buyers and sellers will provide
EQUILIBRIUM PRICE (known also as MCP)
in a
market where demand and supply are equal.
When there is a disequilibrium two cases occur:
.Surplus (Excess supply)
- Where supply exceeds demand, then there is a surplus due to
a high price
- A business raises its price, as a result demand drop
- The goods would remain unsold
.Shortage (excess demand)
- Demand exceeds supply because of the low prices
- Shortage of goods in the market
.Interaction of supply and demand
.Market Clearing Price (MCP/MCQ [quantity])
- EQUILIBRIUM means a state of equality or balance
between demand & supply.(no excess
demand and
supply). No tendency for price or quantity to change
- DISEQUILIBRIUM means where supply and
demand are out of balance (/are not equal)
- The interaction of buyers and sellers will provide
EQUILIBRIUM PRICE (known also as MCP)
in a
market where demand and supply are equal.
When there is a disequilibrium two cases occur:
.Surplus (Excess supply)
- Where supply exceeds demand, then there is a surplus due to
a high price
- A business raises its price, as a result demand drop
- The goods would remain unsold
.Shortage (excess demand)
- Demand exceeds supply because of the low prices
- Shortage of goods in the market
