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    L7ECO113 Equilibrium

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    Vineet Kumar
    This document discusses market equilibrium in business economics. [1] Market equilibrium exists when supply and demand are equal such that there is no tendency for prices to change. [2] The equilibrium price is determined by the intersection of the supply and demand curves. [3] If supply exceeds demand, there is excess supply which causes prices to fall; if demand exceeds supply, there is excess demand which causes prices to rise until equilibrium is reached.

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    © All Rights Reserved
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    L7ECO113 Equilibrium

    Uploaded by

    Vineet Kumar
    9 views17 pages
    This document discusses market equilibrium in business economics. [1] Market equilibrium exists when supply and demand are equal such that there is no tendency for prices to change. [2] The equilibrium price is determined by the intersection of the supply and demand curves. [3] If supply exceeds demand, there is excess supply which causes prices to fall; if demand exceeds supply, there is excess demand which causes prices to rise until equilibrium is reached.

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    This document discusses market equilibrium in business economics. [1] Market equilibrium exists when supply and demand are equal such that there is no tendency for prices to change. [2] The equilibrium price is determined by the intersection of the supply and demand curves. [3] If supply exceeds demand, there is excess supply which causes prices to fall; if demand exceeds supply, there is excess demand which causes prices to rise until equilibrium is reached.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    9 views17 pages

    L7ECO113 Equilibrium

    Uploaded by

    Vineet Kumar
    This document discusses market equilibrium in business economics. [1] Market equilibrium exists when supply and demand are equal such that there is no tendency for prices to change. [2] The equilibrium price is determined by the intersection of the supply and demand curves. [3] If supply exceeds demand, there is excess supply which causes prices to fall; if demand exceeds supply, there is excess demand which causes prices to rise until equilibrium is reached.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 17

    ECO113

    BUSINESS ECONOMICS

    Dr. Md Abusaad
    Assistant Professor
    Learning Outcomes

    After this lecture , you will be able to


    ✓ Understand the concept of Market Equilibrium

    ✓ Explain how Market Equilibrium is reached

    ✓ Evaluate the change in Market Equilibrium with change in

    Demand and Supply


    Concept of Market Equilibrium

    • Equilibrium refers to the state of balance or


    status quo where there is no change.

    • Market equilibrium is arrived at by the balance


    between demand and supply, which means that
    both are equal and there is no tendency to change.
    Example
    Price Supply Demand
    15 10 50
    20 15 40
    25 30 30
    30 45 15
    35 70 10

    D
    S

    E
    Price

    Q Quantity
    Example

    Surplus (Price falls)


    D
    S

    P1
    Price

    E
    P

    P2

    Deficit (Price rises)


    Q Quantity
    Excess Supply

    • If the price is 60, the demand D S


    is 15 (as shown by the
    Demand Curve) and the
    60
    supply is 45 (as shown by the

    Price
    E
    Supply Curve).
    • The Supply is more than
    Demand
    • There will be a downward
    pressure on Price till it
    reaches the equilibrium level.
    15 45
    Quantity
    Excess Demand

    • If the price is 30, then the D S


    demand is 40 (as shown by
    the demand curve) and the

    Price
    supply is 10 (as shown by E
    the supply curve).
    • Demand is more than 30
    Supply.
    • There will be a upward
    pressure on price till it 10 40 Quantity
    reaches the equilibrium
    level.
    Example of Excess Demand
    Price Adjustment Mechanism
    • Suppose the demand equation for mobile phones by Samsung for
    the year 2018 is given by Qd = 1000 –P, and the supply equation is
    given by Qs = 100 +4P.
    a. What is the equilibrium price?
    b. What is the excess demand or supply if price is (i) 500 and (ii) 100?
    Solution:
    a. At equilibrium quantity demanded (Qd) = quantity supplied (Qs)
    So, 1000-P = 100+4P
    Equilibrium price (P) = 180
    b. (i) When price is 500, Qd = 1000–500 = 500,
    Qs = 100 + 4(500) = 2100,
    Therefore, excess supply = 2100 – 500 = 1600
    (ii) When price is 100, Qd = 1000 – 100 = 900,
    Qs = 100 + 4(100) = 500,
    Therefore, excess demand = 900-500 = 400
    Changes in Market Equilibrium

    • If demand changes or supply changes or both


    changes, then the market equilibrium will also
    change.

    • The comparison between the two equilibrium


    situations is known as comparative statistics.
    Change in Demand

    The supply is taken as constant over here


    D1
    D
    S

    E1
    P1
    Price

    E
    P

    Q Q1 Quantity
    Change in Supply

    The demand is taken as constant over here

    D
    S
    S1
    Price

    E
    P
    P1 E1

    Q Q1 Quantity
    Changes in both Demand and Supply

    This is comparative statistics


    The Demand has increased more and the Supply has increased but less
    D1
    D
    S
    S1
    P1 E1
    Price

    E
    P

    Q Q1
    Quantity
    Changes in both Demand and Supply
    This is comparative statistics
    The Demand has increased less and the Supply has increased more
    D1
    D S
    Price

    S1
    E
    P E1
    P1

    Q Q1
    Quantity
    Changes in both Demand and Supply
    • This is comparative statistics
    • The Supply has decreased and the demand has increased
    D1
    S1
    Price
    D

    E1 S
    P1

    P E

    Quantity Q1 Q
    Changes in both Demand and Supply

    • This is comparative statistics


    • The Supply has increased and the demand has decreased
    D
    S
    Price D1

    E S1
    P

    P1 E1

    X1 X
    Quantity
    That’s all for now…

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