NIOS X Economics, Ch 11, Ch 12 and Ch 13 Determination of Price, Market and role of govt

1. Determination of Price and Quantity

2. The Meaning of Price
A seller sells a commodity in
exchange for money.
The buyer pays money to the seller in
exchange for goods and services.
The amount of money
the buyer
pays
for the goods and services
to the seller
is called
“the price of the good or service”

3. Review some concepts…
• The Main aim of the seller is to….
earn profit.
• Profit is the difference between…..
Total revenue and Total cost.
• Total Revenue is the amount
received by the seller for selling the
goods and services.
• Total cost is the amount
spent by the producer for producing the
goods and services.

4. Factors influencing the seller while fixing the price.
1. Cost of production(COP):
Price should be more than the per unit cost of
production(COP). Price > COP
• The difference between the per unit price and per unit
cost of production of commodity is profit per unit.
PRICE – COP = PROFIT
• Higher the difference between the Price and COP,
higher the profit.
• So fixing of a price for a commodity
is very important for a seller.

6. Factors influencing the seller while fixing the price.
2.Price fixed by other sellers.
While fixing the price of his commodity,
the seller must consider
the price of commodity
fixed by the other sellers
of the same commodity.
If the seller fixes a prices
which is higher than the price
fixed by other sellers,
he will not be able to sell more quantity.
So to sell more
he should fix a price
which is equal or near the price of other sellers,
so he can earn profit.

9. Factors influencing the seller while fixing the price.
• 3. Expected sales at different prices:
The seller must fix a price, such that the quantity sold
gives him maximum profit.

10. Meaning and Determination of Price
( According to the law
of demand,
the buyer of a
commodity
buys more at a low price
and less at a high price.)
If a seller FIXES A HIGH PRICE
quantity supplied will be
more than
quantity demanded.
(According to law of
Supply,
the seller of a
commodity
will sell more at a higher
price.)
If a seller FIXES A LOW PRICE
Quantity demanded will be
more than
quantity supplied.

11. The aim of the buyer is to get maximum
satisfaction by spending less.
The aim of the seller is to get maximum profit.
If at a price both quantity demanded and quantity
supplied of a commodity are equal that is called
EQUILIBRIUM PRICE.
The price of a commodity is determined by the
forces of demand and supply in the market.

13. • The Price at which
quantity demanded
is equal
to the quantity supplied
is called
the equilibrium price.
• At Equilibrium price
quantity demanded and quantity supplied
of a commodity are equal.
• This quantity
is called
the equilibrium quantity
of the commodity

14. Determination of Equilibrium Price
The Seller wants to sell at a higher price. The consumer wants to buy at a lower price.
Observations:
1.When the price is Rs.20/- the seller offers 300kg of
tomatoes for sale.
but the buyer is willing to buy only 100kgs.
2. If the price falls to Rs.18/- the quantity
demanded rises to 150 but the quantity
supplied falls to 250.
3. In both the above cases the quantity
supplied is more than the quantity
demanded.
4. Due to excess supply of tomatoes the price
keeps falling.
5.The price of tomatoes falls to Rs.16/-.
6.At this price the buyer is willing to buy 200kgs
and the seller is also willing to sell 200kgs.
7.Thus Rs.16/- is the EQUILIBRIUM price of tomatoes
at which quantity demanded is equal to quantity
supplied
Quantity demanded and supplied of tomatoes
Price of
Tomatoes (Rs.
Per kg)
Quant ity
demanded
per day(kgs)
Quantity
supplied per
day (kgs)
20 100 300
18 150 250
16 200 200
14 250 150
12 300 100

15. Determination of Equilibrium Price
1)When DD> SS price starts rising.
2)This rise in price continues until demand = supply.
3)When SS > DD price starts falling.
4)This fall in price continues until demand = supply.
5)This price at which demand = supply
is called equilibrium price.
6)Hence, equilibrium price of a commodity is determined by the market
forces of demand and supply.

16. Excess Supply : Qty SS is more than Qty DD
Equilibrium
Excess
Demand Qty
DD is more
than Qty SS
Equilibrium Price
Equilibrium Quantity

17. Disequilibrium situations
Quantity demanded and supplied of tomatoes
Price of
Tomatoes (Rs.
Per kg)
Quantity
demanded
per day(kgs)
Quantity
supplied per
day (kgs)
20 100 300
18 150 250
16 200 200
14 250 150
12 300 100
In the table shown:
1.At prices Rs.14 and Rs. 12
the quantity demanded and
quantity supplied are not equal.
Here the price is less than the
EQUILIBRIUM price.
2. At prices Rs.20 and Rs. 18 the
quantity demanded and the
quantity supplied are also not
equal the price is more than the
EQUILIBRIUM price.
3. These two situations are
disequilibrium situations.

18. Adjustment to equilibrium position
• 1. When the Quantity supplied is more than quantity demanded and price is more than the
equilibrium price, the price falls till quantity supplied is equal to quantity demanded.
• Excess Supply
• Qty SS > Qty DD  Price Fall
• till it Qty SS = Qty DD
• This is the Equilibrium Price
• 2. When Quantity demanded is more than quantity supplied and price is less than the
equilibrium price, the price rises till quantity demanded is equal to quantity supplied.
• Excess Demand
• Qty DD > Qty SS  Price rise
• till it reaches Qty DD = Qty SS
• This is the Equilibrium Price
• 3. Thus in our example when the price reaches Rs.16. both quantity supplied becomes
equal to quantity demanded. This is the Equilibrium price and the quantity sold at this
price is the Equilibrium quantity.

19. Effect of change in demand on equilibrium price and
quantity and supply remains same
When the demand for a good increases but its supply remains the same:
Equilibrium price and quantity demanded and supplied increases.
When the demand for a good decreases but its supply remains the same:
Equilibrium price and quantity demanded and supplied
decreases.

20. Supply remains the same Demand increase
Equilibrium Price increases
Equilibrium quantity increase
EQ.1
DD
DD
DD1
DD1
SS
SS
EQ.2

21. Effect of change in supply on equilibrium price and quantity
When the supply for a good increases but its demand remains the same:
Equilibrium quantity demanded and supplied increases
Equilibrium price will decrease..
When the supply for a good decreases but its demand remains the same:
Equilibrium quantity demanded and supplied decreases
Equilibrium price will increase.

22. Demand remains the same Supply increase
Equilibrium Price decreases
Equilibrium quantity increase s
EQ.1
DD
SS
SS
SS1
SS1
EQ.2

23. Ques Review…
• 1. Name the factors that influence the decision of a seller in fixing the
price of a commodity.
• 2. If the cost of transportation increase what effect will it have on the
price?
• 3. Excess demand is a situation where:
– a. Quantity demanded of a commodity is equal to its quantity supplied.
– b. Quantity demanded is more than quantity supplied.
– C. Quantity demanded is less than quantity supplied.
4. Excess supply is a situation where :
a. Quantity supplied is equal to quantity demanded.
b. Quantity supplied is more than quantity demanded.
c. Quantity supplied is less than quantity demanded.
5. If at a given price quantity demanded is more than the quantity supplied:
a. Price of the commodity starts falling.
b Price of the commodity does not change.
c. Price of the commodity starts rising.

24. • 6.If at a given price quantity supplied of a commodity is greater than its quantity
demanded:
• a. Price of the commodity starts falling.
• b Price of the commodity does not change.
• c. Price of the commodity starts rising.
• 7. What happens to the equilibrium price of a commodity when :
• a. its demand increases and supply remains the same.
• b. its supply increases and demand remains the same.
• c. its demand decreases but supply remains same.
• d. its supply decreases and demand remains the same.
• 8. How is equilibrium quantity demanded and supplied affected when:
• a. its demand increases and supply remains the same.
• b. its supply increases and demand remains the same.
• c. its demand decreases but supply remains same.
• d. its supply decreases and demand remains the same.
• 9. What happens to the price of a commodity when at a given price:
• a. quantity demanded of a commodity is greater than its quantity supplied.
• b. Quantity supplied of a commodity is greater than its quantity demanded.
• c. quantity demanded is equal to its quantity supplied.

27. Market is a place
where buyers and sellers
come in contact with each other
directly or indirectly,
to buy or sell goods.

28. Features of a market.
1. Commodity : There has to be a commodity
which is being demanded and sold
2. Buyers and sellers: There must be buyers and sellers
of the commodity
3. Communication: There must be communication
between the buyer and seller

29. Structure of Market
• Nature of the Product
• Depending upon number of sellers and buyers
in a market we have two types of market.
• On this basis we have two types of market.
• 1. Monopoly market.
• 2. Perfectly competitive market.
• Both these are extreme forms.

30. Structure of a market
Monopoly: ‘Monos’ means single and ‘Polus’ means seller, So monopoly means single seller.
1.A single Firm : Monopoly is a market structure where we have a
single firm producing the goods.
2.Price maker: The firm is the price maker. The seller is in a position
to charge high price.
3.No close substitute: There is no close substitute of the commodity.
4.No entry of new firm: It is not possible for a new firm to enter in the
market.
5.Main Aim: The main aim is to maximise profit.
6.Example : In India the government has monopoly in Atomic
Energy, Defence, Indian Railways etc.

31. Perfect Competition
1. Large number of sellers and buyers.
2. Homogeneous product: A single product is sold.
All sellers sell the same type of product.
3. Free entry and Exit: Any firm can enter and exit the market.
4. Every seller wants to earn maximum profit.
5. To government provides protection bot does not interfere.
6. The sellers and buyers have perfect knowledge about the product.
7. Factors of production can move freely from one production unit to
another.

32. Imperfect Competition
• In the real world there is no monopoly or perfect competition.
• Private monopoly is not allowed.
• Only monopoly by the government exists.
• Under Perfect competition only one type of product will be sold.
• But in reality we have different brands of soaps available which differ
from one another in colour, size, fragrance.
• Opposite to perfect competition ;
A market where there are many sellers selling different
variations of a particular product.
This type of market is called imperfect competition.

33. Classification of markets on basis of channel distribution
On the basis of channels of distribution of goods and services markets can be
classified into
1. Wholesale markets
2. Retails markets.
Wholesale markets Retails Markets

34. Wholesale Market Retail Market
1. Large quantities are sold here. 1. Small quantities are sold here.
2. Prices are less. 2. Prices are more.
3. This is the link between producer and retailer. 3. This is the link between wholesaler and final consumer.
4. This market is located in areas where transport and
storage are easily reachable.
4. This market is located near residential areas.

35. Online Markets
It’s a process by which consumers directly buy
goods or services from a seller without an
intermediary over the internet.
You can uses your credit/debit cards or COD
to make payments.
It is also know as electronic shopping.
You can also make your electricity/
telephone/gas payments through the internet.

36. Role of Government

37. • Concept Review….
• We learnt that prices are determined by forces of demand and
supply.
• But some times the price determined is very high and people
cannot afford to buy at that price.
• Or sometimes the price is too low that sellers are not able to
cover their cost of production at those prices.
• During such situations the government intervenes.
• The government fixes prices which may be below the
Equilibrium price or at times above the equilibrium price to
help consumers and producers.

38. Control Price
• 1) When demand for a commodity is more than supply,
price increases.
• 2) When price increases, poor consumers are affected.
• 3) In order to help the poor consumers, government
fixes the maximum price of the commodity.
• 4) This price is less than the equilibrium price and is
called control price or ceiling price.
• 5) Thus, control price is fixed by the government to
help the consumers.

39. This price is less than the
equilibrium price and is
called control price or
ceiling price.
…control price is
fixed by the
government to help
the consumers.

40. Support Price
• 1) When supply for a commodity is more than demand ( mainly for agricultural
products), price falls.
• 2) This fall in price affects farmers because they are not able to cover their cost.
• 3) In order to help the farmers, the government fixes the minimum price for
agricultural products.
• 4) This price is more than the equilibrium price and is called support price.
• 5) Thus support price is fixed by the government to help the farmers/producers.

41. Token Price
• 1) There are some essential services which the poor cannot afford
like hospital, school etc.
• 2) The government provides these services at a price below the per
unit cost.
• 3) This price is called token price.
• 4) The purpose of token price is to ensure that no one misuses
these services.

42. Black Marketing
1) Control price is a low price fixed by
the government which is less than the
market price.
2) To make more profits, some sellers
buy large quantities at this low price and
keep stocks.
3) This makes supply less than demand.
4) The sellers then start selling their stocks
at a high price which is illegal.
5) This is called black marketing.
6) The government checks black
marketing by the system of dual pricing.

43. Dual Price
• 1) Under dual price policy, a
commodity is sold at two different
prices.
• 2) A part of the production is sold
at the control price fixed by the
government.
• 3) The remaining is sold at the
market price which is determined by
the market forces of demand and
supply.
• 4) For example – Government sells
wheat, sugar, rice etc. at control prices
to poor people through ration shops.
These commodities are also available
at
D Mart at market prices.
• 5) It helps the poor because they
are able to buy essential commodities
at low prices.

44. Effect of taxes on Market Price
• Effect of taxes on market price
• 1) Government collects sales tax from
producers or sellers.
• 2) The seller has to cover this cost in his
price.
• 3) Hence, he raises the market price.
• 4) Therefore, tax leads to increase in
market price of a commodity.

45. Effect of Subsidies on Market Price
• Effect of subsidy on market price
• 1) Government gives concessions to producers of
certain essential commodities like kerosene, cooking gas
etc.
• 2) Sometimes, government buys commodities from the
sellers at market price and sells them at a lower price.
This is called subsidy.
• 3) Thus essential commodities are available at prices
below the market price.
• 4) Therefore, subsidy leads to fall in market price of the
commodity.

46. Public Distribution System (PDS)
• PDS is public distribution system.
• To take care of the poor people, government
purchases goods from sellers at market prices.
• It sells these goods to the public at control
prices through fair price shops or ration shops.

47. Public Distribution System (PDS)
• Poor people cannot afford to buy the essential commodities at
the market price.
• To help them the Public Distribution System was introduced.
• Under this system they can get wheat, rice and other essential
commodities at cheaper prices.
• The commodities are sold through an identification paper
called the Ration card.
• The essential elements of the PDS are:
– Subsidy
– Fixed quantity (Rationing)
– Fair price shops (FPS)

48. The essential elements of public distribution
system in India.
• 1) Subsidy – Prices of essential commodities are
lower than the market price.
• 2) Fixed quantity – Government fixes quantity per
head based on normal needs per person.
• 3) Fair price shops - This fixed quantity is made
available through ration shops or fair price shops
located in all parts of the country.

49. ThanThkank You