Question

The price, where demand and supply are equal in the market is called:

• A. Total price
• B. Equilibrium price
• C. Minimum price
• D. Maximum price

Hint:

- Demand Curve: Shows quantity demanded at different prices (typically downward sloping). - Supply Curve: Shows quantity supplied at different prices (typically upward sloping). - Equilibrium: Occurs at the intersection of the demand and supply curves. - Equilibrium Price: The price at this intersection. - Equilibrium Quantity: The quantity at this intersection. - If price is above equilibrium: Surplus (Quantity Supplied>Quantity Demanded). - If price is below equilibrium: Shortage (Quantity Demanded>Quantity Supplied).

Answer 1

The Correct Option is B

Step 1: Understand the concepts of demand and supply.
- Demand: The quantity of a good or service that consumers are willing and able to buy at various prices during a given period.
- Supply: The quantity of a good or service that producers are willing and able to offer for sale at various prices during a given period.

Step 2: Define equilibrium in a market.
Market equilibrium occurs at the price where the quantity demanded by consumers equals the quantity supplied by producers.
At this point, there is no tendency for the price to change (unless demand or supply conditions change).

Step 3: Identify the term for this price.
The price at which quantity demanded equals quantity supplied is called the equilibrium price (or market-clearing price).
The corresponding quantity is called the equilibrium quantity.

Step 4: Evaluate other options.
- (1) Total price: A vague term, could refer to the total cost of multiple units, not the specific price point of equilibrium.
- (3) Minimum price (Price Floor): A government-imposed or agreed-upon lower limit on the price of a good or service.
If set above the equilibrium price, it leads to a surplus.
- (4) Maximum price (Price Ceiling): A government-imposed or agreed-upon upper limit on the price of a good or service.
If set below the equilibrium price, it leads to a shortage.

Step 5: Confirm the correct term.
The price where demand and supply are equal is the equilibrium price.
This matches option (2).