Explain What Is Meant By Market Clearing Price
What is meant by ‘Market clearing price?’ Use a diagram to explain your answer. Definition: Market clearing price is the price of goods or services at which quantity supplied is equal to quantity demanded. This is either called the equilibrium price or the market clearing price. Market clearing price can also be said as a mutually agreeable price that is reached between buyers and sellers. Market for watches Price for Watches (Sgd) Quantity of watches 0 The above diagram shows the market for Watches. On the Y axis, is the price range in Singapore dollars and on the X- axis is the number of watches that can be bought and sold. The curve upwards indicates a supply and the curve downwards indicates a demand. The point dotted red is called the equilibrium price or market clearing price. This where the seller and buyer meets at an agreeable price and the item is sold. So in this case all the watches available in the shop have been sold. If 70 watches were available, it means that all 70 watches were sold. From the graph above, when less watches are demanded at the same price, demand (rather than quantity demanded) is said to have decreased. With supply remaining constant, a decrease in demand will push down price. As demand is less the shop might want to give a discount as buyers are not in demand for the watch and maybe giving a discount or lowering the price might make them buy due to the price being lowered. (For example decreasing the watch from $300 to 160) After the …show more content…
Equilibrium point is the only point that can survive on the long run. Price equilibrium is the price you see whenever are buying a watch in this
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