Quantity Demanded (Qd) = Quantity supply (Qs)
Market Equilibrium price and quantity
The intersection of both the demand and supply curves.
Table 2.7: Determinant of
equilibrium Price and Quantity
Price
(RM)
|
Quantity
Demanded (units)
|
Quantity Supplied
(units)
|
Market condition
|
1
|
10
|
2
|
shortage
|
2
|
8
|
4
|
shortage
|
3
|
6
|
6
|
Equilibrium
|
4
|
4
|
8
|
Surplus
|
5
|
2
|
10
|
Surplus
|
So, market equilibrium of
price and quantity is:
Price : RM3
Quantity : 6 units
Market equilibrium based on mathematical form
The demand function and supply function for a goods in the market are as follow:
Qd = 140 - 10P
Qs = 20 + 10P
Where
Qd = Quantity demanded
Qs = Quantity supplied
P = Price
Shortage
- The situation where the price was set up below than equilibrium price.
- The quantity demanded is greater than the quantity supplied.
Surplus
- The situation where the price was set up above than equilibrium price.
- The quantity supplied is greater than the quantity demanded.
- The demand curve shifts and supply remains constant.
- The supply curve shift and demand remains constant.
- Both the demand and supply curves shift simultaneously.
Supply, demand and government policy
Maximum Price or Ceiling Price
- From rising above a maximum level set by the government which can lead to shortage.
- Below the equilibrium price (market price).
- The price is not allowed to rise above this level but it is allowed to fall below it.
Minimum Price or Floor Price
- From falling below a minimum level set by the government which can lead the surplus.
- Above the equilibrium price (market price).
- The price is not allowed to fall below this level but it is allowed to rise above it.