Market Equilibrium

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Market equilibrium is a situation where the plans of all consumers and firms in the market match and the market clears. In equilibrium, aggregate quantity that firms wish to sell equals the quantity t…

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Excess demand occurs when market demand exceeds market supply at a given price. For example, if at ₹25 per kg, consumers want to buy 175 kg of wheat but suppliers only offer 125 kg, there is excess de…

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Excess supply occurs when market supply exceeds market demand at a given price. For example, if at ₹45 per kg, suppliers want to sell 200 kg of wheat but consumers only demand 155 kg, there is excess …

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At equilibrium: qD = qS 200 - 5p = 50 + 2p 200 - 50 = 2p + 5p 150 = 7p p* = ₹21.43 (approx) Substituting back: q* = 200 - 5(21.43) = 92.85 units (approx) Equilibrium price = ₹21.43, Equilibrium quan…

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The 'Invisible Hand' is a concept from Adam Smith that describes the automatic price adjustment mechanism in perfectly competitive markets. It raises prices when there is excess demand and lowers pric…

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When demand curve shifts rightward (with supply unchanged): - At original price, excess demand occurs - Price tends to rise - New equilibrium has HIGHER price and HIGHER quantity - Both price and quan…

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When supply curve shifts leftward (with demand unchanged): - At original price, excess demand occurs - Price tends to rise - New equilibrium has HIGHER price and LOWER quantity - Price and quantity ch…

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MRPL = MR × MPL, where MR is Marginal Revenue and MPL is Marginal Product of Labour. For a perfectly competitive firm, MR = Price, so MRPL = Price × MPL = Value of Marginal Product of Labour (VMPL). A…