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Market Equilibrium — Economics STD 12 Humanities & Commerce — Question

Rajasthan BoardEnglish MediumSTD 12 Humanities & CommerceEconomicsMarket Equilibrium4 Marks
Question
Market for a good is in equilibrium. There is decrease in demand for this good. Explain the chain of effects of this change. Use diagram.### How will equilibrium price and quantity be affected when there is decrease in demand? Explain with diagram.###How will equilibrium price and quantity be affected when there is leftward shift of demand curve?### Explain the chain effects on demand, supply and price caused by leftward shift of demand curve.### Market for a good is in equilibrium. The demand for the good ‘decreases’. Explain the chain of effects of this change.###Good Y is a substitute of good X. The price of Y falls. Explain the chain of effects of this change in the market of X.
✓

Answer

As given in the examination problem that market for a good is in equilibrium. So, we assume that initial price is OP as shown in given figure. In the given figure price is on vertical axis and quantity demanded and supplied are on horizontal axis. But due to decrease in demand, the demand curve shifts leftward from DD to D1D1. With new demand curve D1D1, there is excess supply at initial price OP because at price OP demand is PB and supply is PA so there is excess supply of AB at price OP. Due to this excess supply, competition among the producer will make the price fall. Due to fall in price there is downward movement along the demand curve (Expansion in demand) from B to C and similarly there is downward movement along the supply curve (contraction in supply) from A to C. So, finally, the equilibrium price falls from OP to OP, and equilibrium quantity also falls from OQ to OQ1.
Conclusion: Due to decrease in demand,
  1. Equilibrium price falls from OP to OP1.
  2. Equilibrium quantity also falls from OQ to OQ1.

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