The document discusses the law of supply and demand and how it relates to market equilibrium. It defines demand price as the price people are willing to pay for a product and supply price as the lowest price sellers will accept. It states that equilibrium occurs when supply equals demand, and the price is at a level where the quantity supplied equals the quantity demanded. Graphs of demand and supply price functions are provided, and it is shown that their intersection at a quantity of 600 units and a price of 220 is the point of market equilibrium.

1. Market Equilibrium
Prepared by
Ismail Mohammad El-Badawy
ismailelbadawy@gmail.com

2. Law of supply and
demand
• This law defines how the
price of a product is affected
by the relationship between
the availability of this product
(supply) and the desire for it
(demand).
Demand price: the price that people are willing to pay for a
product when a particular quantity of it is available for sale.
Supply price: the lowest price that sellers will accept for a product.

3. Law of supply and
demand
• When the demand price is
greater than the supply price,
the amount produced tends to
increase.
• In other words, when there is
a shortage of supply (i.e.
demand for a product exceeds
its supply), the price will be
relatively high.
Demand price: the price that people are willing to pay for a
product when a particular quantity of it is available for sale.
Supply price: the lowest price that sellers will accept for a product.

4. Law of supply and
demand
• When the demand price is
smaller than the supply price,
the amount produced tends to
decrease.
• In other words, when there is
a surplus of supply (i.e.
supply of a product exceeds
its demand), the price will
be relatively low.
Demand price: the price that people are willing to pay for a
product when a particular quantity of it is available for sale.
Supply price: the lowest price that sellers will accept for a product.

5. Law of supply and
demand
• When the demand price is
equal to the supply price, the
amount produced has no
tendency either to be
increased or to be reduced; it
is in equilibrium.
• In other words, equilibrium
happens when the supply of a
product is equivalent to its
demand.
Demand price: the price that people are willing to pay for a
product when a particular quantity of it is available for sale.
Supply price: the lowest price that sellers will accept for a product.

6. The demand price function:
Pd = 400 – 0.3Q
Initial demand
price
Decrease in demand
price for each unit
produced

7. • Describe the relationship between
the quantity and the demand price.
• What is the demand price if no
goods are available?
• What happens to the demand price
as the quantity of good increases?
• By how much does the price
decrease if one unit of the
commodity is available?
• For what quantity available does
the commodity become worthless?

8. • Describe the relationship between
the quantity and the demand price.
 Inversely proportional
• What is the demand price if no
goods are available?
 400 (The y-intercept)
• What happens to the demand price
as the quantity of good increases?
 Decreases
• By how much does the price
decrease if one unit of the
commodity is available?
 0.3 (The gradient)
• For what quantity available does
the commodity become worthless?
 1334
1333.
3

9. The supply price function:
Ps = 40 + 0.3Q
40
Initial cost of
supply
Increase in cost of
supply for each unit
produced

10. • Describe the relationship
between the quantity and the
supply price.
• What is the cost of supply before
any commodity is produced?
• For what quantity will the supply
price be 100?
• What is the cost increase per unit
produced?

40

11. • Describe the relationship
between the quantity and the
supply price.
 Directly proportional
• What is the cost of supply before
any commodity is produced?
 40 (The y-intercept)
• For what quantity will the supply
price be 100?
 200
• What is the cost increase per unit
produced?
 0.3 (The gradient)
40
200

12. The demand price function:
Pd = 400 – 0.3Q
The supply price function:
Ps = 40 + 0.3Q 40

13. 40
• Using the graph, or otherwise,
find the quantity of this
commodity in the market that
will be required to obtain market
equilibrium.
• State the price of the commodity
when this happens.

14. • Using the graph, or otherwise,
find the quantity of this
commodity in the market that
will be required to obtain market
equilibrium.
 600
• State the price of the commodity
when this happens.
 220
o If the available quantity < 600
 Shortage of supply and price
increases above 220.
o If the available quantity > 600
 Surplus of supply and price
decreases below 220.
(600,
220)
Market
equilibrium
600
220
Solve the two equations simultaneously 40 + 0.3Q = 400 –
0.3Q
40
Supply should be
increased
Supply should be
decreased

15. • The manufacturer of this
commodity can decrease the cost
of supply before any commodity
is produced. Describe how this
will affect the market equilibrium
quantity and price if nothing else
changes.
40

16. • The manufacturer of this
commodity can decrease the cost
of supply before any commodity
is produced. Describe how this
will affect the market equilibrium
quantity and price if nothing else
changes.
 Quantity increases
 Price decreases
40
10
New equilibrium
point

17. • The manufacturer can also
decrease the cost increase per
unit. Describe how this will affect
the market equilibrium quantity
and price if nothing else changes.
40

18. • The manufacturer can also
decrease the cost increase per
unit. Describe how this will affect
the market equilibrium quantity
and price if nothing else changes.
 Quantity increases
 Price decreases
New equilibrium
point
40