1) The price and quantity of Easter eggs is established by bringing the concepts of both supply and demand together to see how the households differentiate in buying decisions and the selling of Easter eggs to achieve market equilibrium. Market equilibrium is the price at which the quantity supplied equals to the quantity demanded. In the hypothetical market model below, the equilibrium price meets at $3 and the quantity is 7,000 Easter eggs of the demand and supply curves.
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S2 Copyright 2007 McGraw-Hill Australia Pty Ltd, PTs t/a Microeconomics 8e, by Jackson & McIver, By Muni Perumal, University of Canberra, Australia
At equilibrium or market-clearing price, the position in which the market is cleared originates from the equilibrating process; there is neither a surplus nor is there a shortage in Easter eggs. At the current price at $3 and demand at 7,000, neither buyers (households) nor sellers can do business at a better price, as consumers pay the highest price they are willing to pay for the last unit bought, and producers receive the lowest price at which they are willing to supply the last unit sold.
If supply decreased to S2 in the market model, at this point, the quantity of Easter eggs supplied is 4,000 eggs and the price would decrease to $2 each. As the price has decreased, consumers would want to purchase more at this price, which creates a change in quantity demanded but producers will not produce more eggs at this price as it is too low, this causing a shortage. When a shortage occurs, demand from consumers that are currently missing out on their share of Easter eggs, try to outbid each other offering more money for Easter eggs achieving for utility. With this outbidding war, prices are pushed upward; producers supply increases and demand decreases till it reaches equilibrium as shown in the market