Microeconomics | Chapter 5| Class 12 | Srijan India
Srijan India Oneγ»2 minutes read
Market equilibrium is the balance of demand and supply, with price ceilings and floors set by the government to control prices. The equilibrium price and quantity are determined by aligning consumer and firm plans in the market.
Insights
- Market equilibrium is the point where demand and supply are balanced, ensuring that consumers are willing to purchase a specific quantity at various prices, and firms are willing to supply that quantity. Equilibrium price and quantity are crucial for a balanced market, determined by the intersection of demand and supply curves.
- Price ceilings and floors, established by the government, impact market equilibrium by controlling prices. Price ceiling sets a maximum price to keep goods affordable, while price floor establishes a minimum price to maintain market stability. These interventions can lead to shortages or surpluses, affecting consumer satisfaction and market dynamics.
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Recent questions
What is market equilibrium?
Market equilibrium is the point where demand and supply are balanced, ensuring optimal levels for both.
How do price ceilings impact markets?
Price ceilings set by the government control prices to keep them below market rates, aiming to make goods affordable.
What is the invisible hand concept?
The invisible hand concept, introduced by Adam Smith, plays a crucial role in restoring market equilibrium by guiding self-interested individuals towards the common good.
How does an increase in consumer income affect market equilibrium?
An increase in consumer income leads to higher demand for goods, shifting the equilibrium point and impacting prices and quantities.
Why is equilibrium price equal to minimum average cost?
Equilibrium price equals minimum average cost due to free entry and exit of firms, ensuring that firms earn normal profits in the long run.
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