Price Determination (Copy)

2.5 Price Determination

2.5.1 Market Equilibrium

• Market Equilibrium = when demand = supply.
• At equilibrium:
  • Equilibrium Price (Pₑ) = price where market clears.
  • Equilibrium Quantity (Qₑ) = quantity bought and sold at that price.
• Represented on a demand and supply diagram → intersection of curves.

Example:

• At $10 per burger → demand = 100, supply = 100 → equilibrium.

Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Economics Full Scale Course

2.5.2 Market Disequilibrium

• Disequilibrium = when demand ≠ supply.
• Two cases:

1. Excess Demand (Shortage)
   • Price below equilibrium.
   • Demand > Supply.
   • Shortage pushes price up.
   • Example: Rent controls → more demand for flats than supply.
2. Excess Supply (Surplus)
   • Price above equilibrium.
   • Supply > Demand.
   • Surplus pushes price down.
   • Example: Farmers overproduce wheat → prices fall.

Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Economics Full Scale Course

Quick Examples for Exams

• Shortage: Concert tickets priced too low → long queues, black market resale.
• Surplus: Too many unsold smartphones → discounts until cleared.
• Equilibrium: At Rs. 500 per shirt → demand = 1,000, supply = 1,000.

Memory Hooks

• Equilibrium = balance (market clears).
• Disequilibrium = imbalance (shortage/surplus).
• Price mechanism self-corrects → shortage → price ↑, surplus → price ↓.
• Diagram tip: Always label Pₑ and Qₑ.

Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Economics Full Scale Course