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Market Equilibrium — Economics STD 12 Humanities & Commerce — Question

Rajasthan BoardEnglish MediumSTD 12 Humanities & CommerceEconomicsMarket Equilibrium4 Marks
Question
Market of a commodity is in equilibrium. Demand for the commodity ‘increases’. Explain the chain of effects of this change till the market again reaches equilibrium. Use diagram.
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Answer


  • OP1 is the equilibrium price and OQ1 is equilibrium quantity. When demand increases, the demand curve shifts to the right. D2 is new demand curve.
  • This creates an excess demand E1A1 at the existing price OP1.
  • The excess demand causes competition among buyers resulting in rise in price .
  • Rise in price leads to fall in demand and rise in supply as indicated by the arrows.
  • These changes continue till the market reaches new equilibrium at E2 with a higher price OP2 and higher quantity OQ2.

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