Problem 54

Introduction

Equilibrium is the state in which market supply and demand balance each other, and as a result prices become stable. Generally, an over-supply of goods or services causes prices to go down, which results in higher demand—while an under-supply or shortage causes prices to go up resulting in less demand. The intersection of the demand and supply curves for a commodity determines the market equilibrium at which the market forces are in a balanced state. At the equilibrium, the demand and the supply are equal, and the amount of price to be charged for the products and the quantity to be supplied are determined.