FARAHA LUGMANMA-4222642

EQUILIBRIUM

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OVERVIEW Demand and supply Equilibrium in market

Equilibrium quantityEquilibrium price

Excess supply & demand How equilibrium point change? Summary of changes in equilibrium Conclusion References

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Demand

Demand is quantity of a commodity that the consumers are willing and able to buy at a given price over a given period of time

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Law of demand

• An inverse relationship exists between price & quantity demanded

» As price rises…..…..quantity demanded falls

» As price falls…......quantity demanded rises

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Demand curve

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Qty price

Qty product

Supply

• Supply is the quantity of a commodity that the suppliers are willing able to offer for sale at a given price over a given period of time.

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Law of supply

• A direct relationship exists between price & quantity supplied

As price falls….

…..quantity supplied falls

As price rises….

…..quantity supplied rises

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Supply curve

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Qty price

Qty product

Equilibrium in market

• It is where the market price has reached to a level at which quantity demanded is equal to quantity supplied

• Demand intersect the supply• The price at which quantity demanded and quantity

supplied is Equilibrium price• The quantity at which equilibrium arises is

Equilibrium quantity

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Equilibrium point in a Demand & Supply curve

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Equilibrium table

price Quantity demanded per week

Quantity supplied per week

$100 10 50$90 20 40$80 30 30$70 40 20$60 50 10

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Excess demand

• In shortage the price will be lower than the equilibrium price; on the other hand quantity demanded will exceed the quantity supplied

• To comeback

Supplier rise the price of goods

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Excess supply

• The surplus occurs when the price exceeds equilibrium price, on the other hand the quantity supplied would be greater than the quantity demanded

• To comebackSuppliers lower the price of good

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Changes in equilibrium point

• Graphically, changes in the underlying factors that affect demand and supply will cause shifts in the position of the demand or supply curve at every price.

• There are 4 basic causes of price change which would change the equilibrium point

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Changes in demand

1. Demand shifts to the right: increase in demand shift the demand curve to right, & raises price and output.

2. Demand shifts to the left: decrease in demand shifts the demand curve to the left, & reduces price and output

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Changes in supply

3. Supply shifts to the right: increase in supply shifts the supply curve to the right, which reduces prices and increase output

4. Supply shifts to the left: decrease in supply shifts the supply curve to the left, which raises price but reduces output

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Summary of changes in equilibrium

Shift Equilibrium price Equilibrium quantity

Demand increases Higher Higher

Demand decreases Lower Lower

Supply increases Lower Higher

Supply decreases higher lower

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Conclusion

• Demand is defined as the quantity of a good or service consumers are willing and able to buy at a given price in a given time period.

• Supply is defined as the quantity of a product that a producer is willing and able to supply onto the market at a given price in a given time period.

• Equilibrium is where the demand and supply intersect

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reference

• http://www.shmoop.com/supply-demand/equilibrium-price.html

• http://www.economicsonline.co.uk/Competitive_markets/Market_equilibrium.html

• http://thismatter.com/economics/market-equilibrium.htm

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THANK YOU