Using schedule explain how market will reach equilibrium when there is situation of excess supply in the market
Answers
Market Equilibrium under Perfect Competition
Recollect that in a perfect competition price is determined by the industry, the most important characteristic is that no individual consumer or producer can alter the price. A firm is merely reduced to a price taker. Equilibrium refers to a state of balance, a position in which there is no tendency to change.
Evidently, in a perfectly competitive market equilibrium is visualised at a point where market supply becomes equal to market demand. Let’s revisit the market demand and supply.
Market demand is the demand for a commodity in the market. It is the sum total of individuals demand by all buyers of the commodity in the market. Similar to demand curve, a market demand curve also slopes downwards due to the operation of the law of demand.
Market supply is the sum total of individual supplies by all producers of the commodity in the market. Essentially, is the total supply of the commodity. Similar to a supply curve, a market supply curve also slopes upwards due to the operation of the law of supply.