# 12. Market equilibrium and disequilibrium The following graph shows the monthly demand and supply curves in...

12. Market equilibrium and disequilibrium

The following graph shows the monthly demand and supply curves in the market for hats.

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.

The equilibrium price in this market is 5 per hat, and the equilibrium quantity is hats bought and sold per month.

Complete the following table by indicating at each price whether there is a shortage or surplus in the market, the amount of that shortage or surplus, and whether this places upward or downward pressure on prices.

Shortage is where demand is greater than supply when this happens the pressure is upward on price because demand is higher than supply due to shortage the market will not be able to supply much and thus will charge higher

Now in case of surplus when supply is greater than demand the pressure in downward on price because the market is already filled with such alarge amount kf products that arent even required thus inventories will be pilled up and thus price will fall down

The equilibrium in the market is calculated from the intersection of the demand curve and the supply curve. As evident from the graph, the intersection point is (250,40).

Thus equilibrium price in the market is \$40 per hat and equilibrium quantity is 250 hats bought and sold per month.

At P = 48, Supply is more than demand (can be seen from the graph) (Surplus)

Demand = 100 and supply = 400

Surplus amount = 400 -100 = 300

Pressure on price is downward.

At P = 32, there is an excess demand(Shortage)

Demand = 400 and supply =100

Shortage = excess demand = 400 -100 = 300

Pressure on price is upward.

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