Question

Explain how equilibrium price can be determined with the help of demand and supply schedules.

Answer 1

The equilibrium price is the price at which demand equals supply. It is the point at which market demand and supply meet, resulting in no shortage or surplus. This may be plainly demonstrated using a demand and supply timetable.

Demand and Supply Schedule for Shirts
Price (₹ per shirt)	Quantity Demanded (000 shirts per month)	Quantity supplied (000 shirts per month)	Market position	Effect on Price
(1)	(2)	(3)	(4)	(5)
1000	30	56	Excess supply	↓
900	40	50	Excess supply	↓
800	45	45	Equilibrium	↔
700	55	35	Excess demand	↑
600	70	20	Excess demand	↑

The table clearly shows that ₹ 800 is the only price at which the quantity demanded and supplied are equal 45 thousand shirts. Hence, ₹ 800 is the equilibrium price, and 45 thousand shirts is the equilibrium quantity. Any other price level is a disequilibrium price, since demand and supply are not equal.

To understand why only ₹ 800 is the equilibrium, let’s look at prices lower than ₹ 800. At such prices, consumers want to buy more than what producers are willing to sell. For instance, at ₹ 600, buyers would demand 70 thousand shirts, while sellers would only be willing to supply 20 thousand shirts. This results in an excess demand of 50 thousand shirts.