CBSE Class 12 Microeconomics Chapter 5: Market Equilibrium NCERT Solutions

Reviewed by NCERT Help Editorial Team · Updated on 29 Jul 2026

NCERT Solutions PDF Class 12 PDF

This chapter, "Market Equilibrium," for CBSE Class 12 Microeconomics, delves into the fundamental concepts of how markets reach a balance between supply and demand. The NCERT Solutions provide clear explanations of market equilibrium, defining it as the point where the quantity supplied equals the quantity demanded, leading to a stable price. The solutions also thoroughly explain the situations of excess demand, where demand outstrips supply, and excess supply, where supply exceeds demand, detailing the market forces that push prices towards equilibrium in each scenario. These solutions are designed to help students grasp the core principles of market dynamics and prepare effectively for their examinations by offering step-by-step clarifications and illustrative examples.

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Quick info

Board	CBSE
Class	Class 12
Subject	Micro Economics
Session	2026
Language	English
Type	NCERT Solutions
Chapter	Chapter 5

Chapter summary

Chapter 5 of CBSE Class 12 Microeconomics focuses on Market Equilibrium. The NCERT Solutions explain the concept of market equilibrium as the state where quantity demanded equals quantity supplied. It also elaborates on the conditions of excess demand (shortage) and excess supply (surplus), and how market forces naturally adjust prices to restore equilibrium. The solutions cover graphical representations and the implications of prices deviating from the equilibrium level.

Learning outcomes

Understand the concept of market equilibrium.
Define and identify situations of excess demand.
Define and identify situations of excess supply.
Explain the role of price adjustments in achieving market equilibrium.
Interpret market equilibrium using supply and demand diagrams.

Topics covered

Paper topics

Market Equilibrium
Demand
Supply
Equilibrium Price
Equilibrium Quantity
Excess Demand
Shortage
Excess Supply
Surplus
Price Adjustment Mechanism

Important topics

Market Equilibrium Definition
Conditions for Excess Demand
Conditions for Excess Supply
Price Adjustment to Equilibrium
Graphical Representation of Equilibrium

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Questions and Solutions

Question 1

Explain market equilibrium.

Solution: Market equilibrium refers to a specific market condition where the quantity of a commodity that consumers are willing and able to purchase is precisely equal to the quantity that producers are willing and able to sell. This state is achieved when the demand for a product perfectly matches its supply. At this point, the market price is known as the equilibrium price, and the quantity exchanged is the equilibrium quantity. There is no inherent tendency for the price to change because buyers can purchase all they want at that price, and sellers can sell all they want. In a graphical representation, this is typically shown as the intersection of the supply and demand curves. For instance, if the equilibrium price is 60 units and the equilibrium quantity is 500 units, it signifies a stable market state.

Question 2

When do we say that there is an excess demand for a commodity in the market?

Solution: We say that there is an excess demand for a commodity in the market when, at a particular price, the total quantity of the commodity that consumers wish to buy (quantity demanded) is greater than the total quantity that producers are willing to sell (quantity supplied). This situation typically occurs when the prevailing market price is below the equilibrium price. For example, if the equilibrium price is 'Pe' and the current market price is 'P2' (where P2 < Pe), the quantity demanded (Q2) will be higher than the quantity supplied (Q1). This difference (Q2 - Q1) represents the shortage or excess demand in the market. Faced with a shortage, sellers realize they can charge higher prices, and buyers are willing to pay more to obtain the scarce commodity. This leads to an upward pressure on the price, causing it to rise towards the equilibrium level 'Pe', where the shortage is eliminated and quantity demanded equals quantity supplied.

Question 3

When do we say that there is an excess supply for a commodity in the market?

Solution: An excess supply of a commodity occurs in the market when, at a given price, the total quantity of the commodity that producers are willing to sell (quantity supplied) is greater than the total quantity that consumers wish to buy (quantity demanded). This situation commonly arises when the prevailing market price is above the equilibrium price. For instance, if the equilibrium price is 'Pe' and the current market price is 'P1' (where P1 > Pe), the quantity supplied (Q1) will exceed the quantity demanded (Q3). This difference (Q1 - Q3) represents the surplus or excess supply in the market. With unsold goods piling up, sellers are compelled to reduce their prices to clear their inventory. As the price falls, the quantity demanded increases, and the quantity supplied decreases, moving the market towards the equilibrium price 'Pe', where the surplus is eliminated and quantity demanded equals quantity supplied.

Question 4

What will happen if the price prevailing in the market is

Solution: This question appears to be incomplete as it does not specify the price level relative to the equilibrium price. However, based on the principles of market equilibrium, we can explain the general outcomes:

If the prevailing price is below the equilibrium price: There will be excess demand (a shortage) in the market. The quantity demanded will exceed the quantity supplied. This shortage will create upward pressure on the price, causing it to rise towards the equilibrium level.
If the prevailing price is above the equilibrium price: There will be excess supply (a surplus) in the market. The quantity supplied will exceed the quantity demanded. This surplus will create downward pressure on the price, causing it to fall towards the equilibrium level.
If the prevailing price is equal to the equilibrium price: The market will be in equilibrium. The quantity demanded will equal the quantity supplied, and there will be no tendency for the price to change.

To provide a specific answer, the exact price level needs to be stated in relation to the equilibrium price.

Common mistakes

Confusing excess demand with excess supply.
Not understanding how price changes resolve shortages or surpluses.
Incorrectly identifying the equilibrium price and quantity on a graph.

Revision tips

Focus on the definitions of equilibrium, excess demand, and excess supply.
Practice drawing and interpreting supply and demand diagrams.
Understand the dynamic process of price adjustment towards equilibrium.
Review the conditions under which shortages and surpluses occur.

Practice MCQs

Q1. What is the condition for market equilibrium?

Q2. When does excess demand for a commodity occur in the market?

Q3. What is the consequence of excess supply in a market?

Q4. In a market, if the price is below equilibrium, what is the likely market adjustment?

Q5. Market equilibrium is a state where there is no tendency for prices to:

Frequently asked questions

What is market equilibrium in Microeconomics?

Market equilibrium is a state in a market where the quantity of a commodity demanded by consumers is exactly equal to the quantity supplied by producers at a specific price. At this point, there is no pressure for the price to change.

What happens when there is excess demand in a market?

Excess demand occurs when the quantity demanded exceeds the quantity supplied at a given price, typically when the price is below the equilibrium level. This situation leads to a shortage, and market forces tend to push the price upwards.

What is excess supply and how is it resolved?

Excess supply, also known as a surplus, occurs when the quantity supplied is greater than the quantity demanded at a given price, usually when the price is above equilibrium. Market forces resolve this by reducing the price, which increases demand and decreases supply until equilibrium is reached.

How does the price adjust to reach market equilibrium?

If there is excess demand (shortage), prices tend to rise, which encourages more supply and discourages demand. If there is excess supply (surplus), prices tend to fall, which discourages supply and encourages demand. This price adjustment continues until quantity demanded equals quantity supplied.

Are diagrams important for understanding market equilibrium?

Yes, diagrams showing the intersection of supply and demand curves are crucial for visually understanding market equilibrium, as well as illustrating situations of excess demand and excess supply and the price adjustments that occur.

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