Test of Managerial Economics

Name: Pranshu Mishra

SAP ID: 500106843
MBA (B.A)

Q1. Analyze the determination of equilibrium price and equilibrium

quantity using demand and supply theory. Use diagrams to explain this.
Also, explain what you understand by the market clearing price.

Ans. Equilibrium is the state in which market supply and demand are
equal to each other which intern results in stabilization of price.

Market Supply = Market Demand

If the market supply exceeds the demand if the commodity. It result in
excess supply over the demand. When two lines on a diagram cross, this
intersection usually means something. On a graph, the point where the
supply curve (S) and the demand curve (D) intersect is the equilibrium.
The equilibrium price is the only price where the desires of consumers
and the desires of producers agree—that is, where the amount of the
product that consumers want to buy (quantity demanded) is equal to the
amount producers want to sell (quantity supplied). This mutually desired
amount is called the equilibrium quantity. At any other price, the
quantity demanded does not equal the quantity supplied, so the market is
not in equilibrium at that price.
The previous conclusion of surpluses and shortages, that if a market is
not in equilibrium, then market forces will push the market to the
equilibrium.
If the demand exceed the market supply of the commodity it will result
in increase in the price of the commodity

Determinants of Equilibrium:
The change will equilibrium happened when either the demand or
supply shifts some of the determinants of the equilibrium
Product cost is one of the most important factor which effect the price of
the product as it includes the total fixed cost variable cost and semi
variable cost that happened during the process of production,
distribution and selling of product
As the demand curve shows the relation of a quantity from which how
much price is customer is willing to pay

The market clearing price is the price at which the demand for a good by
consumers is equal to the number of goods that can be produced at that
price. Which the demand for a good by consumer is equal to the no of
goods that can be produced at that price both buyer and seller are
attempt to find most advantageous price for their interest.