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प्रश्न
If the prevailing market price is above the equilibrium price, explain its chain of effects.
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उत्तर
When the price is above the equilibrium market price of a good (OP), the price ceiling leads to excess of supply. In the diagram, the equilibrium price and quantity are OP and OQ. As the equilibrium price is low for farmers, the government fixes the price floor, i.e. the price level increased from OP to OP1 which leads to a decline in the quantity demand, and therefore, there is excess supply in the market. Here, the competition will increase among the sellers, and hence, the price will come down to the equilibrium point where market demand is equal to market supply.
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संबंधित प्रश्न
Explain the chain effects, if the prevailing market price is below the equilibrium price.
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Write explanatory answer.
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Define or explain the following concept:
Equilibrium price
State whether the following statement is TRUE and FALSE.
Under perfect competition, price is determined by equilibrium of demand and supply.
Suppose the demand and supply equations of a commodity X in a perfectly competitive market are given by :
Qd = 1700 – 2P
Qs = 1300 + 3P
Calculate the value of equilibrium price and equilibrium quantity of the commodity X.
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When the equilibrium price is greater than the market price there will be excess supply in the market.
