2.3 Determination of Equilibrium Price and Quantity

The market answer: price settles where quantity demanded = quantity supplied — the market equilibrium; that price is the equilibrium price, that quantity the equilibrium quantity. The mechanism (how the market "finds" it — Smith's invisible hand): SituationConditionPressureResultPrice above equilibriumQs > Qd (excess supply/ surplus)sellers cut price to clear stocksprice falls toward equilibriumPrice below equilibriumQd > Qs (excess demand/ shortage)buyers bid price upprice rises toward equilibrium A worked mini-table (equilibrium where Qd = Qs = 3): Price (Rs)QdQsState4015surplus 4 → price falls3024surplus 2 → price falls2533equilibrium2042shortage 2 → price rises1551shortage 4 → price rises Why this matters to a lawyer (learn one line): this chapter is the intellectual core of market regulation — price controls set below equilibrium (rent caps, fuel price freezes) create shortages, queues and black markets; controls above it (price floors, minimum wages, MSP) create surpluses. Every such law is an intervention in this diagram, and its predictable side- effects are the diagram's predictions (a claim your Consumer Protection Act 2074-era answers can make elegantly).