Price determination under perfect competition: Equlibrium price, How is equilibrium price and quantity affected by changes in demand and supply.

1. PRICE DETERMINATION
UNDER PERFECT
COMPETION
PRESENTED BY
MANOTOSH KU.PATI
PGT-ECONOMICS
JAWAHAR NAVODAYA VIDYALAYA,BAGUDI
BALASORE,ORISSA .PIN-756045

2. OBJECTIVESOBJECTIVES
 General ObjectivesGeneral Objectives
 To create interest among the students to study economicsTo create interest among the students to study economics
 To expand the knowledge & skill of the studentsTo expand the knowledge & skill of the students
 Develop economic reasoning which the learners can apply inDevelop economic reasoning which the learners can apply in
their day to day lifetheir day to day life
 Instructional ObjectivesInstructional Objectives
 It will help them to acquire a detailed knowledge aboutIt will help them to acquire a detailed knowledge about
market & market forcesmarket & market forces
 It will enable them to know the skill of drawing differentIt will enable them to know the skill of drawing different
diagrams of economic theorydiagrams of economic theory
 Interpret visuals, data and statistical resultsInterpret visuals, data and statistical results

3. CONTENTCONTENT
Test of previous knowledgeTest of previous knowledge
**Demand Schedule & demand curveDemand Schedule & demand curve
*Supply Schedule & supply curve*Supply Schedule & supply curve
*Equilibrium price & Quantity*Equilibrium price & Quantity
*Effect of Changes in DD on Equilibrium Price*Effect of Changes in DD on Equilibrium Price
* Effect of Changes in SS on Equilibrium* Effect of Changes in SS on Equilibrium PricePrice
*Test your knowledge*Test your knowledge
*Home Assignments*Home Assignments
* References* References

4. Test of previous knowledgeTest of previous knowledge
 Name the market forces.Name the market forces.
 What do you mean by Law ofWhat do you mean by Law of
demand?demand?
 What do you mean by Law of supply?What do you mean by Law of supply?

5. TOPIC :-TOPIC :-DETERMINATION OF PRICEDETERMINATION OF PRICE
UNDER PERFECT COMPETITIONUNDER PERFECT COMPETITION
• FOR
• CLASS-XII
• (HUM & COM)
DR. ALFRED MARSHALL

6. PRICE DETERMINATION UNDER
PERFECT COMPETITION
PRICE IS DETERMINED BY TWO FACTORS
DEMAND & SUPPLY
DEMAND IS INVERSELY RELATED WITH PRICE
SUPPLY IS DIRECTLY RELATED WITH PRICE

7. DEMAND CURVE
0
2
4
6
8
10
12
100 200 300 400 500
DEMANDPRICE
Series1
PRICE(Rs) QUANTITY
DEMANDED(in
Kg.)
10 100
9 200
8 300
7 400
6 500
DEMAND SCHEDULE & DEMAND CURVE
THE ABOVE TABLE SHOWS ,WHEN PRICE OF GOOD X IS FALLING ,ITS
QUANTITY DEMANDED RISES
D
D

8. DD CURVES SLOPES DOWNWARD
SHOWING AN INVERSE
RELATIONSHIP BETWEEN PRICE &
QUANTITY DEMANDED

9. SUPPLY SCHEDULE & SUPPLY CURVE
PRICE(Rs) QUANTITY
SUPPLIED
(in Kg.)
10 500
9 400
8 300
7 200
6 100
SUPPLY CURVE
0
5
10
15
1 2 3 4 5
QT.SUPPLYPRICE
S
S
THE ABOVE TABLE SHOWS WHEN THE PRICE OF THE COMMODITY IS
FALLING ITS QUANTITY SUPPLIED REDUCES .

10.  Supply curve slopping
upwards showing an
direct relationship
between quantity
supplied and price .

11. PRICPRIC
E(PE(PXX))
QuantityQuantity
demandeddemanded
(D(D xx))
QuantityQuantity
suppliedsupplied
(S(SXX))
EffectsEffects
1010 100100 500500 D<SD<S
99 200200 400400 D<SD<S
88 300300 300300 D=SD=S
77 400400 200200 D>SD>S
66 500500 100100 D>SD>S
AT PRICE Rs.8 QUANTITY DEMAND AND QUANTITTY SUPPLIED ARE EQUAL

12. DIAGRAM SHOWING EQUILIBRIUM PRICE
Y
O
X
D
D
S
S
P
QUANTITY
P
R
I
C
E
E
M
IN THE ABOVE DIAGRAM OP IS THE EQUILIBRIUM PRICE ,OM IS EQUILIBRIUM
QUANTITY

13. DIAGRAM SHOWING EXCESS DEMAND &
EXCESS SUPPLY
Y
O
X
D
D
S
S
P
QUANTITY
P
R
I
C
E
E
M
AT PRICE OP1, AB IS THE EXCESS SUPPLY, & AT PRICE OP2 CG IS THE EXCESS
DEMAND
M1
P1
P2
A
B
C G

14. EFFECT OF CHANGE IN DEMAND &EFFECT OF CHANGE IN DEMAND &
SUPPLY ON EQUILIBRIUM PRICESUPPLY ON EQUILIBRIUM PRICE
• EQULIBRIUM PRICE IS INFLUENCED BY THEEQULIBRIUM PRICE IS INFLUENCED BY THE
CHANGES IN THREE CONDITIONSCHANGES IN THREE CONDITIONS ..
• 1.CHANGES IN DEMAND1.CHANGES IN DEMAND
• 2.CHANGES IN SUPPLY2.CHANGES IN SUPPLY
• 3.CHANGES IN BOTH DEMAND3.CHANGES IN BOTH DEMAND
AND SUPPLYAND SUPPLY

15. INCREASE IN DEMAND :-
Y
O
X
D
D
S
S
P
QUANTITY
P
R
I
C
E
E
M
NEW PRICE IS OP1 & NEW QUANTITY IS OM1 ,DUE TO INCREASE IN DEMAND .
E1
P1
M1
D1
D1

16. DECREASE IN DEMAND :-
Y
O
X
D
D1
S
S
P
QUANTITY
P
R
I
C
E
E
M
NEW PRICE IS OP1<OP & NEW QUANTITY IS OM1 <OM,DUE TO DECREASE IN
DEMAND .
E1
M1
D1
P1
D

17. INCREASE IN SUPPLY
D
D
O
X
Y
S
S
S1
S1
QUANTITY
P
R
I
C
E
E
E1
P
P1
THE NEW PRICE OP1 < OP , & THE NEW QUANTITY IS OM1> OM DUE
TO INCREASE IN SUPPLY FROM SS TO S1S1
M M1

18. DECREASE IN SUPPLY
D
D
O
X
Y
S1
S1
S
S
QUANTITY
P
R
I
C
E
E1
E
P1
P
THE NEW PRICE IS OP1>OP & NEW QUANTITY OM1<OM ,DUE TO
DECREASE IN SUPPLY FROM SS TO S1S1
M1 M

19. WHEN BOTH DEMAND & SUPPLY CHANGE:-
If demand increases at a greater proportionate than
increase in supply :-
o
X
Y
D
D
D1
D1
S
S
S1
s1
E
E1P
R
I
C
E
M M1
QUANTITY
NEW EQ.PRICE E1M1 IS MORE THAN INITIAL EQ.PRICE EM .

20. IF SUPPLY INCREASES AT A GREATER PERCENTAGE
THANTHE INCREASE IN DEMAND :-
O
X
Y
D
D
D1
D1
S
S
S1
S1
M M1
E E1
P
R
I
C
E
QUANTITY
THE NEW EQ. PRICE E1M1< INITIAL EQ.PRICE EM ,

21. IF DEMAND & SUPPLY INCREASE IN
SAME PROPORTION :-
O X
Y
D
D
D1
D1
S
S
S1
S1
E E1
M M1
P
QUANTITY
P
R
I
C
E
NEW EQ.PRICE E1M1=ORIGINAL PRICE EM

23. POINTS TO BE REMEMBERED
Changes in DD & SS Effect on Eq. Price Effect on Eq. Quantity
Increase in Demand Price Rises Quantity increases
Decrease in Demand Price Falls Quantity decreases
Increase in Supply Price Falls Quantity increases
Decreases in Supply Price Rises Quantity decreases
Increase in both Price may rise, fall or
remain same
Quantity increases
Decrease in both Price may rise, fall or
remain same
Quantity decreases
Demand =Supply No change No Change

24. Test Your Knowledge
Q1. Which point
is called
as
equilibrium
point ?
a. A
b. E
C. B
A
E
B

25. Test Your Knowledge
Q2. Which price
is called as
equilibrium
price ?
a. Pf
b. Pe
C. Pc
A
E
B

26. Test Your Knowledge
Q3. At what price
Qd>Qs ?
a. Pf
b. Pe
C. Pc
A
E
B

27. Test Your Knowledge
Q4. At What price
Qs > Qd
equilibrium
price ?
a. Pf
b. Pe
C. Pc
A
E
B

28. Test Your Knowledge
Q5. Which Quantity
is called as
equilibrium
quantity ?
a. Q1
b. Qe
C. Q2
A
E
B

29. Numerical Example
Consider the following demand and supply
function of a commodity:
QD = 160 - 2P
Qs= -40+2P
(i) Find equilibrium price
(ii) Find equilibrium quantity
(iii) Which situation arises when market price is
Rs.30?
(iv) Which situation arises when market price is
is Rs.60?

30. HOME ASSIGNMENTHOME ASSIGNMENT
1.What is equilibrium price ?1.What is equilibrium price ?
2.Mention the two factors that2.Mention the two factors that
determine the price of a commodity .determine the price of a commodity .
3.How is the price determined under3.How is the price determined under
perfect competition ?perfect competition ?
4.4.""Equilibrium price may increase ,Equilibrium price may increase ,
decrease or remain constant with thedecrease or remain constant with the
changes in demand & supply both”changes in demand & supply both”
explain with suitable diagrams .explain with suitable diagrams .

31. Continued :-Continued :-
5.Explain how is equilibrium price5.Explain how is equilibrium price
influenced by an increase ininfluenced by an increase in
demand only ?use diagram .demand only ?use diagram .
6.Explain the effect of a fall in6.Explain the effect of a fall in
supply on equilibrium price ?supply on equilibrium price ?
7.Both demand & supply plays an7.Both demand & supply plays an
important role in theimportant role in the
determination of equilibriumdetermination of equilibrium
price .Suggest your view .price .Suggest your view .

32. 1.Advanced Economic theory
by-H.L.AHUJA
2.Introductory Micro & Macro
Economics by-Dr.B.L.Gupta
3.http://dogpile.com
4.http://Google.com

33.  My sincere thanks toMy sincere thanks to
 Navodaya VidyalayaNavodaya Vidyalaya
SamitiSamiti
 Anup Sir & Aditya SirAnup Sir & Aditya Sir
for their guidancefor their guidance
 Meenaketan SahooMeenaketan Sahoo
TGT-MathsTGT-Maths
JNV,Surangi for hisJNV,Surangi for his
assistanceassistance
& to the Venue& to the Venue
Principal Mr.Principal Mr.
Prabhakar Reddy SirPrabhakar Reddy Sir ,,