Answer to Question #108746 in Microeconomics for Danial Malik

Question

Explain meaning of term ‘equilibrium price and quantity’ in the market for a good, how a new equilibrium is established when there is an increase in demand and respond to the reason that government has intervened.

Answer 1

Equilibrium quantity is when there is no shortage or surplus of a product in the market. Supply and demand intersect, meaning the amount of an item that consumers want to buy is equal to the amount being supplied by its producers.

The equilibrium price is the market price where the quantity of goods supplied is equal to the quantity of goods demanded.

In other words, with an equilibrium price and quantity, the market has reached a perfect state of balance.

With an increase in demand the demand curve will shift to the right and new equilibrium will be setted - with P'<P and Q'>Q.