Which of the following will be the equilibrium quantity and price?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → q*, p*
Equilibrium is where the supply curve SS and the demand curve DD cross. There, the quantity buyers want equals the quantity firms want to sell: q* at the price p*.
At p2 supply is more than demand (excess supply), and at p1 demand is more than supply (excess demand). Neither price can last.
NCERT (2026-27): “5.1.1 Market Equilibrium: Fixed Number of Firms … Graphically, an equilibrium is a point where the market supply curve intersects the market demand curve because this is where the market demand equals market supply. …” “5.1.1 Market Equilibrium: Fixed Number of Firms … Similarly, if the prevailing price is p2, the market supply (q2) will exceed the market demand (q′2) at that price giving rise to excess supply equal to q′2q2. Some firms will not be then able to sell quantity they want to sell; so, they will lower their price. All other things remaining the same as price falls, quantity demanded rises, quantity supplied falls, and at p*, the firms are able to sell their desired output since market demand equals market supply at that price. Therefore, p* is the equilibrium price and the corresponding quantity q* is the equilibrium quantity.” |