market equilibrium

1. Equilibrium
The word Equilibrium means a state of balance
An equilibrium is a condition that exists when the
market forces ( supply and demand ) are equal
In equilibrium the quantity supplied and quantity
demanded are equal
In graphical, at the equilibrium point, the supply curve
and demand curve intersects.

2. Equilibrium Price
 The price that balances quantity supplied and quantity
demanded.
 On a graph, it is the price at which the supply and demand
curves intersect.
Equilibrium Quantity
 The quantity supplied and the quantity demanded at the
equilibrium price.
 On a graph it is the quantity at which the supply and
demand curves intersect.

6. Example
Lets recall our previous example, the following is the market
supply ad market demand schedule of an ice cream

7. The market becomes equilibrium when the market forces
become balanced. i.e. demand and supply are equal
At the above table, the market is equilibrium at the midpoint,
where price is 4 and quantity supplied and demanded is 8
The equilibrium price is 4
And equilibrium quantity is 8
Let show in a graph

8. EQUILIBRIUM POINT
Price
per
cone
7
6
5
4
3
2
1
S
E
D
8 10 14
12
4 6
2

9. All other points, except point E, the quantity supplied and
quantity demanded are not equal.
Therefore;
Excess Supply
Occurs when the quantity supplied is greater than quantity
demanded in a market
Excess Demand
Occurs when the quantity demanded is greater than quantity
supplied
It can be shown graphically as follows

10. Example 2

11. EQUILIBRIUM POINT
A
Price
per
DVD
$5.00
4.00
3.50
3.00
2.50
2.00
1.50
1.00
S
C
Excess demand D
1 2 3 4 5 6 7 8 9 10 11 12
Quantity of DVDs supplied and demanded
Excesssupply
E

12. Exercise
Using the following table;
 Graph the supply and demand curves
 Show the equilibrium point
 What is the equilibrium price
 What is the equilibrium quantity
 How many points excess supply exists? show
 How many points there is excess demand? show

13. Price Market Demand Market supply
1 7 7
2 6 6
3 5 5
4 4 4
5 3 3
6 2 2
7 1 1

14. ELASTICITY
elasticity, in economics, a measure of the responsiveness of
one economic variable to another.
For example, Elasticity of demand or supply explains the
relationship between a change in price and consequent
change in amount demanded or supplied .
Elasticity is measurement of the percentage change in one
variable that results from a 1% change in another variable.

15. Elasticity is an important economic measure, because it indicates
how quantity supplied and quantity demanded change when price
or other determinants are changed.
The measure can be either Elastic, Unit Elastic, or Inelastic
Elastic
A small change in variable may lead to a great change in the other.
For example, A small change in price may lead to a great change
in quantity demanded. In this case, demand is elastic.

16. In-Elastic
A big change in variable is followed by a small change in the
other variable.
For example; a big change in price is followed by a small
change in demanded then the demand in “inelastic”.
Unit Elastic
A change in variable may lead to an equivalent change in the
other variable.

17. Elasticity of Demand/ Supply

30. Utility Concepts