marketequilibrium

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2. Market equilibrium
Equilibrium is the state of balance from which no
deviation is desired. A market is said to be in
equilibrium when its
demand= supply
In the figure below, DD is the demand curve and SS is the supply
curve. E is the point where, DD = SS. Therefore, OP will be the
equilibrium price and OM will be the equilibrium quantity of demand
and supply.

3. H
E
D S
L
K
S D
G
P1
P
P2
Price
0 M
Quantity of demand and supply
Surplus
Deficit

4. If price increases to OP1, the demand will be P1G and
supply will be P1H. Here SS > dd. GH amount of goods will
remain surplus and unsold at price OP1. There will be a
competition among the producers to sell that surplus amount.
As a result price will fall and it will be falling till it becomes
OP.
If price falls to OP2, then the demand will be P2L and
supply will be P2K. Here SS<dd. KL amount of goods will be
shortage at that price OP2. There will be a competition
among the buyers. As a result price will rise and it will be
rising till it becomes OP.
At price OP. demand and supply will be equal to OM. At
this price and quantity market will get its equilibrium.

5. Mathematical exercise
Suppose followings are two equations.
Q= 23-4p
Q= 5+ 2p
Q-1. Identify which one is demand equation and which one is supply equation.
Q-2. Write down the cause of your identification.
Q-3 Calculate the equilibrium price and quantity of demand and supply.
Q-4 Show these graphically.
Solution:
1st equation is demand equation because of having – sign before price.
2nd equation is supply equation because of having + sign before price.
We know that at equilibrium Demand = Supply
So, 23-4P= 5+2P
Or, 6P= 18 So, P=3 Tk.
Putting the value of P in Demand and supply equations we get
Qd = 23-4.3= 11 unit. And
Qs= 5+2.3= 11 unit

6. 3
11

7. D1
3
11
E1
S1

8. Due to hard effort of the agricultural scientists, production of rice has been
augmented tremendously. At the same time government has executed new
pay scale in such a way that price remained unchanged. Show it graphically.
D1
S1
3

9. Supply and Demand Together
Equilibrium Price
The price that balances supply and demand. On a graph, it is
the price at which the supply and demand curves intersect.
Equilibrium Quantity
The quantity that balances supply and demand. On a graph it is
the quantity at which the supply and demand curves intersect.
Demand Schedule
Price Quantity
$0.00 19
0.50 16
1.00 13
1.50 10
2.00 7
2.50 4
3.00 1
Supply Schedule
Price Quantity
$0.00 0
0.50 0
1.00 1
1.50 4
2.00 7
2.50 10
3.00 13
At $2.00, the quantity demanded is equal to
the quantity supplied!

10. Market Equilibrium
A market brings together those who are willing and able to supply
the good and those who are willing and able to purchase the good.
In a competitive market, where there are many buyers and sellers,
the price of the good serves as a rationing mechanism.
Since the demand curve shows the quantity demanded at each
price and the supply curve shows the quantity supplied, the point
at which the supply curve and demand curve intersect is the
point at where the quantity supplied equals the quantity
demanded. This is call the market equilibrium.
Only in equilibrium is
quantity supplied equal
to quantity demanded.
At any price level other
than P0, the wishes of
buyers and sellers do
not coincide.

11. Consumer Surplus
Only the marginal consumer is willing to pay just the market
price in a typical supply and demand equilibrium.
The consumers would be willing to pay more than the market
price are what makes the demand curve slope downward.
The amount that these consumers would be willing to pay, but do
not have to pay is known as the consumer surplus.
Prices Equilibrium Point Consumer Surplus:
The difference
between the
demand curve
(marginal benefit)
and price (marginal
cost)
Quantity

12. Producer Surplus
The marginal cost of producing a good is represented by the
supply curve.
The price received by the sale of the good would be the marginal
benefit to the producer, so the difference between the price and
the supply curve is the producer surplus.
Prices Equilibrium Point
Producer
Producer surplus:-The
difference between the
price (marginal benefit)
and the supply curve
(marginal cost).
surplus
Quantity

13. Market Disequilibria
Price
Excess demand, or
shortage, is the condition
that exists when quantity
anded exceeds quantity
plied at the current price.
hen quantity demanded
ceeds quantity supplied,
ice tends to rise until
uilibrium is restored.
Shortage
Quantity

14. Market Disequilibria
Price
Excess supply, or surplus,
is the condition that exists
Surplus when quantity supplied
eds quantity demanded
e current price.
n quantity supplied exceeds
tity demanded, price tends
l until equilibrium is
red.
Quantity

15. Increases in Demand and Supply
Higher demand leads to Higher supply leads to lower
higher equilibrium price and equilibrium price and higher
higher equilibrium quantity. equilibrium quantity.

16. Decreases in Demand and Supply
Lower demand leads to Lower supply leads to
lower price and lower higher price and lower
quantity exchanged. quantity exchanged.

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