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Equilibrium
The document discusses the concepts of demand, supply, and market equilibrium. It defines demand as the quantity consumers are willing to buy at a given price, and supply as the quantity producers are willing to provide. Equilibrium exists where supply and demand are equal, establishing an equilibrium price and quantity. The document outlines the laws of supply and demand and how shifts can change the equilibrium point, such as a rise in demand increasing both price and quantity. Causes of excess supply or demand are also examined, and how equilibrium is impacted by changes in underlying market factors.
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Equilibrium
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- 2. OVERVIEW Demand andsupply Equilibrium in market Equilibrium quantity Equilibrium price Excess supply & demand How equilibrium point change? Summary of changes in equilibrium Conclusion References 5/12/2014 (13:20PM) 2
- 3. Demand Demand isquantity of a commodity that the consumers are willing and able to buy at a given price over a given period of time 5/12/2014 (13:20PM) 3
- 4. Law of demand •An inverse relationship exists between price & quantity demanded » As price rises….. …..quantity demanded falls » As price falls….. ....quantity demanded rises 5/12/2014 (13:20PM) 4
- 5. Demand curve 5/12/2014 (13:20PM)5 Qty price Qty product
- 6. Supply • Supply isthe quantity of a commodity that the suppliers are willing able to offer for sale at a given price over a given period of time. 5/12/2014 (13:20PM) 6
- 7. Law of supply •A direct relationship exists between price & quantity supplied As price falls…. …..quantity supplied falls As price rises…. …..quantity supplied rises 5/12/2014 (13:20PM) 7
- 8. Supply curve 5/12/2014 (13:20PM)8 Qty price Qty product
- 9. 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 5/12/2014 (13:20PM) 9
- 10. Equilibrium point ina Demand & Supply curve 5/12/2014 (13:20PM) 10
- 11. Equilibrium table price Quantity demandedper week Quantity supplied per week $100 10 50 $90 20 40 $80 30 30 $70 40 20 $60 50 10 5/12/2014 (13:20PM) 11
- 12. Excess demand • Inshortage 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 5/12/2014 (13:20PM) 12
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- 14. Excess supply • Thesurplus occurs when the price exceeds equilibrium price, on the other hand the quantity supplied would be greater than the quantity demanded • To comeback Suppliers lower the price of good 5/12/2014 (13:20PM) 14
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- 16. Changes in equilibriumpoint • 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 5/12/2014 (13:20PM) 16
- 17. 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 5/12/2014 (13:20PM) 17
- 18. 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 5/12/2014 (13:20PM) 18
- 19. Summary of changesin equilibrium Shift Equilibrium price Equilibrium quantity Demand increases Higher Higher Demand decreases Lower Lower Supply increases Lower Higher Supply decreases higher lower 5/12/2014 (13:20PM) 19
- 20. Conclusion • Demand isdefined 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 5/12/2014 (13:20PM) 20
- 21. reference • http://www.shmoop.com/supply- demand/equilibrium-price.html • http://www.economicsonline.co.uk/Competiti ve_markets/Market_equilibrium.html •http://thismatter.com/economics/market- equilibrium.htm 5/12/2014 (13:20PM) 21
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