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MICROECONOMICS CH : 13 MARKET EQUILIBRIUM UNDER PERFECT COMPETITION AND EFFECTS OF SHIFTS IN DEMAND AND SUPPLY — Economics STD 11 Commerce — Question

CBSE BoardEnglish MediumSTD 11 CommerceEconomicsMICROECONOMICS CH : 13 MARKET EQUILIBRIUM UNDER PERFECT COMPETITION AND EFFECTS OF SHIFTS IN DEMAND AND SUPPLY3 Marks
Question
Equilibrium price is established only when $D=S$. Why?
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Answer

Because, if demand (D) and supply (S) are not equal, there would be either excess demand $( D > S )$ or excess supply $( S > D )$. In case there is excess demand, market price will tend to rise. Consequently, there will be extension of supply and contraction of demand. The process of extension and contraction would continue till market clears itself: $S = D$ and equilibrium price is established. Similarly, if there is excess supply, market price will tend to fall, leading to extension of demand and contraction of supply. The process of extension and contraction would continue till market clears itself: $S = D$ and equilibrium price is established.

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