Market equilibrium
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- There is a tendency for price and quantity to change (price and quantity are not stable) in a free market. - A market is in equilibrium when the demand curve and the supply curve intersect. - The point of equilibrium is where quantity demanded (Qd) equals quantity supplied (Qs) and price is at the equilibrium price. - When Qd does not equal Qs, the market will not be in equilibrium and there may be two circumstances: excess supply (surplus) or excess demand (shortage).
Market equilibrium
- 1. Definition - here is no t T endencyforpr @ qtyt cha (pr &qtya ice t o nge ice t re st bl ) ae - A r is in equil ium w t maketDD cur e a t maket ibr hen he r v nd he maketSScur e int sect r v er
- 2. Market Equilibrium - R t t int a ion bet een DD a SSin t maket(Qd = Qs ) efer o he er ct w nd he r - Pr a t pointofequil ium (equilibrium price) ice t he ibr - Qtya t pointofequil ium (equilibrium qtty) t t he ibr * the point of equilibrium is not s table or permanent*
- 3. Condition F or Market Equilibrium Qd = Qs W Qd = Qs (maketw lnotbe in equil ium)t hen, r il ibr his ma ha in 2 cir a :- y ppen cumst nces a E SS(Sur us ) ) xcess pl b)E DD (Shora ) xcess t ge
- 4. Exces s S S @ S urplus Qs > Qd - T ee impora effect hr t nt s:- aP) b)Qs w lcont a (Qs ) il r ct c)Qd w lexpa (Qd ) il nd
- 5. Exces s DD @ S hortag e Qd > Qs - T ee impora effect hr t nt s:- aP) b)Qd w lcont a (Qd ) il r ct c)Qs w lexpa (Qs ) il nd
- 6. Determination Of market Equilibrium - T ee met hr hods i)Numer lA l ica naysis ii)Ga lA l r phica naysis iii)M t t l a l ahemaica naysis Qd = Qs a- bP = c + dP
- 7. Effects of chang es in DD on ME Increas e DD DD ; F SS; equil ium P&Qty ixed ibr t Decreas e DD DD ; F SS; equil ium P&Qty ixed ibr t
- 8. Effects of chang es in S S on ME Increas e S S SS; F DD ; eP; eQ ixed Decreas e DD SS; F DD ; eP; eQ ixed
- 9. Effects of chang es in DD & S S on Equal Mag nitudes on Market Equilibrium - F sit t :- our uaions a DD &SSin equa ma udes ) l gnit b) DD &SSin equa ma udes l gnit c) DD & SSin equa ma udes l gnit d ) DD & SSin equa ma udes l gnit
- 10. a DD &SSin equa ma udes ) l gnit DD & S S ; eQ ; c ons tant eP b) DD &SSin equa ma udes l gnit DD & S S ; eQ ; c ons tant eP
- 11. c) DD & SSin equa ma udes l gnit DD & SS ; eP ; c ons tant eQ d ) DD & SSin equa ma udes l gnit DD & SS ; eP ; c ons tant eQ