equilibrium and determination of price.ppt

8/10/2019 equilibrium and determination of price.ppt

1/12

S Kumaraperumal


2/12

equilibriumWhen QD QS price

QS QD price

Larger the diferencegreater the pressure toprice

When QD= QS Price isstable


3/12

equilibriumprice TQ S/month TQD/month Supply orshortage

5

4

3

2

1

12000

10000

7000

4000

1000

2000

4000

7000

11000

16000

+10000

+6000

0

7000

15000


4/12

Equilibrium between demand and suppl

Law o! demand

!all in price" Qdemanded rises and #ice #ersa

Law o! suppl

industr will ofer moreQ o! goods when price ishigher than at a lower price

Equilibrium

the le#el o! price at

which the demand andsuppl cur#e intersecteach other will $nallcome to sta in themar%et

&

Quantity

Price SupplyDemand

Excess

Supply

ExcessDemand

P

PH

PL

Equilibrium point


5/12

't eq price both partiessatis$ed

(! price Eq price then someo! the sellers ma not able to

sell allDispose at lower price

Price go down to meet eq price

(! Eq price price the buerswould not able to get therequired Q)ead to bu at higher price

Price goes up to meet Eq price

Equilibrium between demand and suppl


6/12

'wa !rom eq

price

)eal world

'gri mar%et* !armers usepolitical pressure to obtainhigher than eq price

labour mar%et* social

pressure

o!ten ofset economicpressure

stri%e*+obless can,t getstri%er,s +ob

Price ceiling and price-ooring


7/12

.ime element intheor o! price

Price determinantsare both demand"suppl andtime/ 0arshall1

Both demand and supplydepends on time that allowed

price to adjust

Supply takes time to adjust itselfto a change in the demandcondition

Three time categoriesmarket period

short period

long period


8/12

Determination o!

mar%et price0ar%et period

2er short period

Suppl is $3ed

Suppl is limited toe3isting stoc% o! the good

!hange in "eman"pro"uces changes inprice #hen supply isconstant

Perishable goods

inelastic 4per!ectl#ertical straight line

Q

Price supply

Demand


9/12

Determination o!

mar%et price0ar%et periodWhen price o! durablegoods are decrease withdecrease in demand

Suppl can be decreasedb %eeping sourcequantit in in#entor

Suppl can be increasedout o! the gi#en stoc% i$its "eman" an" priceincrease

durable goods

inelastic 4per!ectl #erticalstraight line

Q

Price supply

Demand

O

Reserve

price

Max

Price

(entire

Supply

offer for

sale)


10/12

Determination o!

mar%et priceLong run price/normal price1

Determined b longrun equilibrium

Firms will stop to supply till

they get price that covertheir variable costs

Price is determined by bothsupply and demand

Q

Price

supply

Demand

O

SRS


11/12

Determination o!

mar%et priceShort run price/short periodnormal price1

5irms %eep producinge#en i! the are notable to co#er '.6

(! not the lose their$3ed cost

Firms will stop to supply till

they get price that covertheir variable costs

Price is determined by bothsupply and demand

Q

Price

supply

Demand

O

MPS SRS


12/12

surplus

6onsumer surplusThe dierence between the

amount of money that aconsumer actually pays to buyand willing to pay for the samequantity

Producer surplus

the ecess of market price at

which producers sell thequantity of a commodity abovethe minimum price at whichthey would be willing to supplyit!

Consumer

surplus

Producer

surplus

Q

P

0

equilibrium and determination of price.ppt

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