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    Untitled Document - Edited

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    Untitled Document - Edited

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    8 views2 pages

    Untitled Document - Edited

    Uploaded by

    workmania370

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    Of course! The equilibrium of supply and demand is a critical idea in economics.

    Let's dissect
    what is usually displayed in a diagram representing the surplus, shortage, and equilibrium.

    Demand Curve (D): Components of the Diagram

    Assuming all other variables stay the same, this curve illustrates the link between the cost of a
    commodity or service and the quantity that customers demand. It slopes downhill, suggesting
    that the amount desired rises as the price falls.

    Curve of Supply (S):

    Assuming all other variables stay the same, this curve illustrates the link between the cost of an
    item or service and the volume produced by producers. It slopes upward, suggesting that the
    quantity supplied rises with the price.

    Point of Equilibrium (E):

    The intersection of the supply and demand curves is known as the equilibrium point. Market
    equilibrium is reached when the amount supplied by producers and the quantity sought by
    consumers are equal. The quantity exchanged is the equilibrium quantity, and the price at this
    moment is the equilibrium price.

    Overabundance

    A surplus is created when the amount supplied surpasses the required at a specific price. This is
    usually depicted in the diagram above the equilibrium price, where the quantity provided exceeds
    the amount needed.

    Deficit:

    A shortage arises when the quantity delivered at a given price is less than the quantity required.
    This is usually depicted in the diagram below the equilibrium pricing when the quantity supplied
    is less than the quantity required.

    Justification
    Equilibrium: The market clears at the equilibrium point (E), indicating no tendency for the price
    to fluctuate because the quantity provided and requested are equal. This is an example of a stable
    situation when sellers and buyers have reached a price.

    Surplus: When a price is set higher than the equilibrium price, producers are willing to supply
    more goods than customers are willing to purchase at that higher price, resulting in a commodity
    surplus. The price is under pressure to decline due to this excess.

    Scarcity: When a price is set below the equilibrium price, more people will want the good than
    producers are prepared to provide at the lower price, resulting in scarcity. The price is pressured
    upward by this shortage.

    In summary, the demand and supply curves, the equilibrium point, and the regions denoting
    excess or shortfall are usually depicted in the diagram that illustrates the equilibrium of supply
    and demand. Understanding these elements facilitates analyzing how quantities and prices
    fluctuate in response to market shifts in the supply and demand dynamics.

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