Determining Market Equilibrium Supply and demand equations are equated by setting 600 - 500P equal to 300P, which resolves to an equilibrium price of 0.75. Substituting this price into the supply equation yields an equilibrium quantity of 225. These values mark the intersecting point on the graph that serves as the reference for analyzing market deviations.
Surplus Arising from Increased Price When the price is raised to 1 dollar, substituting into the demand equation gives a quantity of 100 and into the supply equation yields a quantity of 300. The resulting imbalance, where supply exceeds demand by 200 units, clearly identifies a surplus. Only the lower demanded 100 units are exchanged, demonstrating the effects of higher prices on lowering demand while boosting supply.
Shortage Emerging from Price Reduction A price drop to 0.5 dollars leads to a demand of 350 units and a supply of 150 units after substitution into the corresponding equations. The gap of 200 units indicates a shortage, as only the available 150 units can be traded in the market. This outcome highlights how lowered prices stimulate demand while discouraging supply, pushing the market away from its equilibrium.