Market Equilibrium Analysis

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This presentation is used in my lecture on market equilibrium analysis(Managerial Economics-MBA). Your feedback is important for me. Thx
My other work can be seen at www.educationpyramid.com

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Market Equilibrium Analysis

  1. 1. Lecture-2 Managerial Economics Lecture Delivered by Prof. Muhammad Azeem www.azmeco.blogspot.com
  2. 2. Law of Demand www.azmeco.blogspot.com Slide-2 Assuming all other things held constant, with a decrease in the price of a good, the quantity demanded will increase. Assuming all other things held constant, with an increase in the price of a good, the quantity demanded will decrease.
  3. 3. Law of Demand www.azmeco.blogspot.com Slide-3 P Qd D 5 e P 1 12 d R 4 2 10 I c 3 3 8 C b E 2 4 6 1 a 5 4 0 4 6 8 10 12 QUANTITY DEMANDED
  4. 4. Law of Supply www.azmeco.blogspot.com Slide-4 Assuming all other things held constant, with a decrease in the price of a good, the quantity supplied will decrease. Assuming all other things held constant, with an increase in the price of a good, the quantity supplied will also increase. 4
  5. 5. Law of Supply www.azmeco.blogspot.com Slide-5 S P Qs P 5 e 1 4 R 4 d 2 6 I 3 c C 3 8 E 2 b 1 4 10 a 5 12 0 4 6 8 10 12 Quantity Supplied 5
  6. 6. Market Equilibrium www.azmeco.blogspot.com Slide-6 Market equilibrium is point where buyers and seller reach the compromise and settle down the price of the commodity. At this price quantity demanded is equal to the quantity supplied. In diagram both curves intersect at this equilibrium level. This is a stable equilibrium. 6
  7. 7. Market Equilibrium www.azmeco.blogspot.com Slide-7 P Qd Qs 1 12 4 2 10 6 3 8 8 4 6 10 5 4 12 7
  8. 8. Market Equilibrium www.azmeco.blogspot.com Slide-8 Point e is market equilibrium point. P Qd Qs S 1 12 4 P 5 4 2 10 6 R e I 3 3 8 8 C 2 E 4 6 10 1 D 5 4 12 0 4 6 10 12 8 Quantity 8
  9. 9. Market Equilibrium is Stable www.azmeco.blogspot.com Slide-9 Due to shortage prices Price are pulled down to equilibrium point, and due to surplus prices D S are pushed up to equilibrium level. As a result market S>D equilibrium remains stable. P E D>S Quantity Q 9
  10. 10. Mathematical Form of Market Equilibrium Model www.azmeco.blogspot.com Slide-10 This is a simple mathematical form of market equilibrium model. Demand and supply Let curves are assumed to be linear. Slope of the both Qd = 14 - 2P curves is same. Qs = 2 + 2P D=S
  11. 11. Changes in Demand and Supply www.azmeco.blogspot.com Slide-11 Balloon is hanging over the wall. It expands in the day and contracts in the night. This is an example of changes in the volume of balloon. This change is due to the air pressure inside the balloon. 11
  12. 12. Changes in Demand and Supply www.azmeco.blogspot.com Slide-12 Hanging Balloon moves upward and downwards. Due to the change in the supporting thread. This is an example of changes in the level of height of balloon. This change is due to the change in the size of thread. 12
  13. 13. Change in Quantity Demanded-Due to price www.azmeco.blogspot.com Slide-13 Price An increase in price causes a decrease in quantity demanded. P1 b P0 a Quantity Q1 Q0 13
  14. 14. Changes in Quantity Demanded-Due to price www.azmeco.blogspot.com Slide-14 Price A decrease in price causes an increase in quantity demanded. P0 a b P1 Quantity Q0 Q1 14
  15. 15. Changes in Quantity Supplied-Due to price www.azmeco.blogspot.com Slide-15 A decrease in price Price causes a decrease in quantity supplied. P0 a P1 b Quantity Q1 Q0 15
  16. 16. Changes in Quantity Supplied-Due to price www.azmeco.blogspot.com Slide-16 An increase in price causes an increase in Price quantity supplied. P1 b P0 a Quantity Q0 Q1 16
  17. 17. Shift Factors of Demand www.azmeco.blogspot.com Slide-17 Changes in Income of consumers Changes in Taste of the consumers Changes in the market size (no. of buyers) Changes in the price of related goods/services 17
  18. 18. Changes in Demand - Due to shift factors www.azmeco.blogspot.com Slide-18 Rise in demand shows a rightward shift in the market Price demand curve. D0 D1 a b P0 Quantity Q0 Q1 18
  19. 19. Changes in Demand - Due to shift factors www.azmeco.blogspot.com Slide-19 Fall in demand shows a leftward shift in the market Price demand curve. D1 D0 b a P0 Quantity Q1 Q0 19
  20. 20. Shift Factors of Supply www.azmeco.blogspot.com Slide-20 Changes in state of technology Changes in the prices of factors input Changes in the market size (no. of sellers) Changes in the Government policy (incentives) 20
  21. 21. Changes in Supply - Due to shift factors www.azmeco.blogspot.com Slide-21 Rise in supply shows a rightward shift in the supply Price curve. S0 S1 a b P0 Quantity Q0 Q1 21
  22. 22. Changes in Supply - Due to shift factors www.azmeco.blogspot.com Slide-22 Fall in supply shows a leftward shift in the supply curve. Price S1 S0 b a P0 Quantity Q1 Q0 22
  23. 23. Effects of Changes in Demand on Market Equilibrium Point www.azmeco.blogspot.com Slide-23 Price Rise in demand will cause the market equilibrium price D0 D1 S0 and quantity to increase. P1 E1 P0 E0 Quantity Q0 Q1 23
  24. 24. Effects of Changes in Demand on Market Equilibrium Point www.azmeco.blogspot.com Slide-24 Price Fall in demand will cause the market equilibrium price D0 S0 and quantity to decrease. P0 E0 P1 E1 Quantity Q1 Q0 24
  25. 25. Effects of Changes in Supply on Market Equilibrium Point www.azmeco.blogspot.com Slide-25 Rise in supply will Price cause the market equilibrium price to D0 S0 decrease and quantity to increase. P0 E0 P1 E1 Quantity Q0 Q1 25
  26. 26. Effects of Changes in Supply on Market Equilibrium Point www.azmeco.blogspot.com Slide-26 Price Fall in supply will cause the market equilibrium price to D0 S1 S0 increase and quantity to decrease. E1 P1 P0 E0 Quantity Q1 Q0 26
  27. 27. Effects of Simultaneous Changes in Demand and Supply www.azmeco.blogspot.com Slide-27 D D D D S S S S S S S S S 27
  28. 28. Effects of Simultaneous Changes in Demand and Supply www.azmeco.blogspot.com Slide-28 D D D D S S S S S S 1 2 3 5 S S S 4 S = D 6 S = D 9 S = D 12 S = D 15 S D 7 S D 10 S D 13 S D 16 S D 8 S D 11 S D 14 S D 17 28
  29. 29. No Change in Demand and Supply www.azmeco.blogspot.com Slide-29 1 Price D0 S0 E P0 = 3 Quantity Q0 = 8 29
  30. 30. No Change in Demand and Rise in Supply www.azmeco.blogspot.com Slide-30 2 Price S0 D0 S1 E0 P0 = 3 P1 = 2 E1 Quantity Q0 = 8 Q1 = 10 30
  31. 31. No Change in Demand and Fall in Supply www.azmeco.blogspot.com Slide-31 3 Price S1 D0 S0 E1 P1 = 4 P0 = 3 E0 Quantity Q1 = 6 Q0 = 8 31
  32. 32. No Change in Supply and Rise in Demand www.azmeco.blogspot.com Slide-32 4 Price D1 D0 S0 P1 = 4 E1 P0 = 3 E0 Quantity Q0 = 8 Q1 = 10 32
  33. 33. No Change in Supply and Fall in Demand www.azmeco.blogspot.com Slide-33 5 Price D0 D1 S0 P0 = 3 E0 P1 = 2 E1 Quantity Q1 = 6 Q0 = 8 33
  34. 34. Rise in Demand Is Equal to Rise In Supply www.azmeco.blogspot.com Slide-34 6 Price D1 S0 S1 D0 E0 E1 P0 = 3 Quantity Q0 = 8 Q1 = 12 34
  35. 35. Rise in Demand Is Less Than Rise In Supply www.azmeco.blogspot.com Slide-35 7 Price D1 S0 S1 D0 E0 P0 = 3 E1 P1 = 2 Quantity Q0 = 8 Q1 = 14 35
  36. 36. Rise in Demand Is More Than Rise In Supply www.azmeco.blogspot.com Slide-36 Price D1 8 D0 S0 S1 P1 = 4 E1 E0 P0 = 3 Quantity Q0 = 8 Q1 = 14 36
  37. 37. Rise in Demand Is Equal To Fall In Supply www.azmeco.blogspot.com Slide-37 Price S0 S1 D0 D1 9 E1 P1 = 5 P0 = 3 E0 Quantity Q0 = 8 37
  38. 38. Rise in Demand Is Less Than Fall In Supply www.azmeco.blogspot.com Slide-38 Price D0 D1 S1 S0 10 E1 P1 = 5 P0 = 3 E0 Quantity Q1 = 6 Q0 = 8 38
  39. 39. Rise In Demand Is More Than Fall In Supply www.azmeco.blogspot.com Slide-39 Price D1 S1 S0 D0 11 E1 P1 = 5 E0 P0 = 3 Quantity Q0 = 8 Q1 = 10 39
  40. 40. Fall In Demand Is Equal to Rise In Supply www.azmeco.blogspot.com Slide-40 Price D1 D0 12 S0 S1 P0 = 3 E0 P1 = 2 E1 Quantity Q0 = 8 40
  41. 41. Fall In Demand Is Less Than Rise In Supply www.azmeco.blogspot.com Slide-41 Price D1 D0 13 S0 S1 E0 P0 = 3 P1 = 1 E1 Quantity Q0 = 8 Q1 = 10 41
  42. 42. Fall In Demand Is More Than Rise In Supply www.azmeco.blogspot.com Slide-42 Price D0 14 D1 S0 S1 E0 P0 = 3 E1 P1 = 1 Quantity Q1 = 6 Q0 = 8 42
  43. 43. Fall In Demand Is Equal To Fall In Supply www.azmeco.blogspot.com Slide-43 Price D1 D0 15 S1 S0 E1 E0 P0 = 3 Quantity Q1 = 4 Q0 = 8 43
  44. 44. Fall In Demand Is Less Than Fall In Supply www.azmeco.blogspot.com Price Slide-44 D0 D1 S1 S0 16 E1 P1 = 4 E0 P0 = 3 Quantity Q1 = 4 Q0 = 8 44
  45. 45. Fall In Demand Is More Than Fall In Supply www.azmeco.blogspot.com Slide-45 Price D0 17 D1 S1 S0 E0 P0 = 3 P1 = 2 E1 Quantity Q1 = 4 Q0 = 8 45
  46. 46. Perfectly Inelastic Demand Curve And Changes In Supply www.azmeco.blogspot.com Slide-46 Price D S1 1 Perfectly S0 Inelastic E1 Demand P1 Curve S2 E0 P0 E2 P2 Quantity Q 46
  47. 47. Perfectly Inelastic Supply Curve And Changes In Demand www.azmeco.blogspot.com Slide-47 Price S 2 Perfectly Inelastic E1 Supply P1 Curve P0 E0 D1 E2 P2 D0 D2 Quantity Q 47
  48. 48. Perfectly Elastic Demand Curve And Changes In Supply www.azmeco.blogspot.com Slide-48 Price 3 Perfectly Elastic Demand Curve S2 S0 S1 E1 E0 E2 P D Q1 Q0 Q2 Quantity 48
  49. 49. Perfectly Elastic Supply Curve And Changes In Demand www.azmeco.blogspot.com Slide-49 Price 4 Perfectly Elastic Supply P1 Curve P0 D1 D0 D2 E1 E0 E2 P2 S Q1 Q0 Q2 Quantity 49

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