increases to 220 units while the quantity supplied decreases to

400 units. However, when the price is Rs.30/- both demand and
supply are equal at 300 units and therefore Rs. 30 is called as the
equilibrium price.

Similarly, when the price is Rs. 10 the quantity demanded is

500 units while the quantity supplied by the seller is only 100
units. As price rises to Rs. 20, the quantity demanded falls to 400
units while the quantity supplied rises to 200 units. As the price
rises to Rs.30/-, however, both demand and supply are equal at
300 units and therefore Rs. 30 is called as the equilibrium price.

The above schedule is graphically represented as follows:

Quantity Demanded & Supplied

Figure 3.4

In the above diagram, on the X-axis quantity demanded and

supplied is measured while on the Y-axis price is measured. In the
diagram supply curve 'SS' slopes upward indicating the direct
relationship between quantity supplied and price while the
demand curve 'DD' slopes downwards indicating the inverse
relationship between price and quantity demanded. At point E
quantity demanded is equal to quantity supplied i.e. at price
Rs.30/-, 300 units are demanded and supplied. Therefore, point
'E' is known as the point of equilibrium. At this point quantity
demanded is equal to quantity supplied i.e. 300 units and the
equilibrium price is Rs. 30/-.

Under perfect competition a single price exists. If the price

rises above the equilibrium price, the existing sellers will supply
more and new firms will enter the market and offer their goods for
sale. However, demand contracts as some of the buyers buy less
than before and the marginal buyers drop out. As a result, the