Class 12 PPT on Price determination and simple applications Made by Amitesh YADAV

2. Market Consists of three elements
 Demand, describing the behaviour
of consumers in the market
 Supply, describing the behaviour
of firms in the market
 Market Equilibrium, connecting
demand and supply and describing
how consumers and producers
interact in the market.

3.  Perfect Competition is a market
structure where each firm is a price-
taker and price is determined by the
market forces of demanded and
supply. We know, equilibrium is
determined when market demand is
equal to market supply.
Determination Of market Equilibrium
Under Perfect Competition

4. Market Demand & Market
Supply
 Market Demand is the sum total of
demand for a commodity by all the
buyers in the market. Its curve slopes
downwards due to operation of law of
demand.
 Market Supply is the sum total of
supplies of a commodity by all the
producers in the market . Its curves
slopes upwards due to operation of law
of supply.

5. Market Equilibrium
 Market Equilibrium
is determined when
the quantity
demanded of a
commodity becomes
equal to the quantity
supplied.
 In Fig Market
Demand curve DD
and market supply
curve SS intersect
each other at point
E, which is the
market equilibrium .

6. Why any other price is not the
equilibrium price?
 Any price above Rs6 is not the
equilibrium price as the resulting
surplus, i.e. excess supply would cause
competition among sellers. In order to
sell the excess stock, price would come
down to the equilibrium price of Rs 6.
 Any price below Rs6 is also not the
equilibrium price as due to excess
demand, buyers would be ready to pay
higher price to meet their demand. As a
result, price would rise upto the
equilibrium price of Rs 6.

7. Excess Demand
 Excess Demand
refers to a
situation, when
quantity
demanded is
more than
quantity supplied
at the prevailing
market price.

8. Excess Supply
 Excess Supply
refers to a
situation, where
the quantity
supplied is more
than the quantity
demanded at the
prevailing market
price.

9. Viable Industry
 Viable Industry
refers to an
industry for
which supply
curve and the
demand curve
intersect each
other in positive
axes.

10. Non - Viable Industry
 Non-Viable
Industry refers to
an industry for
which supply
curve and
demand curve
never intersect
each other in the
positive axes.

11. A Demand Curve shifts due to the
following reasons:
 Change in price of complementary
goods
 Change in price of substitute goods
 Change in income(normal and
inferior goods)
 Change in tastes and preferences
 Expectation of Change in the price in
future
 Change in Population

12. A supply Curve Shifts due to
following reasons:
 Change in prices of factors of
production
 Change in prices of other goods
 Change in the state of technology
 Change in the taxation policy
 Expectation of change in price in future
 Change in the goals of firms
 Change in the number of Firms

13. Change In Demand
Increase in Demand
• An Increase in
demand
(assuming no
change in supply)
leads to a
rightward shift
in demand curve
from DD to D1D1.

14. Decrease In Demand
 In case of
decrease in
demand (supply
remaining
unchanged ),
demand curve
shifts to the left
from DD to D2D2.

15. Change in Supply
 When there is an
increase in
supply, demand
remaining
unchanged , the
supply curve
shifts towards
right from SS to
S1S1.
Increase in Supply

16. Decrease in Supply
 When there is an
decrease in
supply, demand
remaining
unchanged , the
supply curve
shifts to the left
from to S2S2.

17. The following four cases of simultaneous
shifts in demand and supply curves
 Both Demand and Supply decreases
 Both Demand and Supply increase
 Demand decreases and supply
increases
 Demand increases and supply
decreases

18. Both Demand and Supply
Decreases
Case1: Decrease in Demand=Decrease
in Supply

19. Case2:Decrease in
Demand>Decrease in Supply

20. Case3:Decrease in
Demand<Decrease in Supply

21. Both Demand and Supply Increase
Case1:Increase in Demand=Increase
in Supply

22. Case2:Increase in Demand> Increase
in Supply

23. Case3:Increase in Demand<Increase
in Supply

24. Demand decreases and supply
Increases
Case1:Decrease in Demand =
Increase in supply

25. Case2:Decrease in Demand> Increase
in Supply

26. Case3:Decrease in Demand< Increase
In supply

27. Demand Increase and supply
decreases
Case1:Increase in Demand=Decrease in Supply

28. Case2:Increase in Demand>decrease in
Supply

29. Case3:Increase in Demand< Decrease in
Supply

30. Special Cases
The effect on equilibrium price and
equilibrium quantity in the following
four cases:
 Change in supply when Demand is
Perfectly Elastic
 Change in Demand when Supply is
Perfectly Elastic
 Change in Demand when Supply is
perfectly Inelastic
 Change in Supply when Demand is
Perfectly Inelastic

31. Change in Demand when Supply is
Perfectly Elastic
Increase In Demand Decrease in Demand

32. Change in Supply when Demand is
Perfectly Elastic
Increase In supply Decrease In Supply

33. Change in Demand when Supply is
Perfectly Inelastic
Increase in Demand Decrease In Demand

34. Change in Supply when Demand is
Perfectly Inelastic
Increase In Supply Decrease In Supply

35. Simple applications OF tools OF
Demand And Supply
 It refers to fixing
the maximum
price of a
commodity at a
lower level than
the equilibrium
price.
Price Ceiling

36. Black Markets & Ration
Shops
 A black market is any market in which
the commodities are sold at a price
higher than the maximum price fixed by
the government.
 Consumers have to stand in long queues
to buy goods from ration shops.
Sometimes, commodities are not
available in the ration shops or goods
are of inferior quality.

37. Price floor or minimum
support price(MSP)
 It refers to the
minimum
price(above the
equilibrium
price), fixed by
the government,
which the
producers must
be paid for their
produce.

38. Minimum wage legislation
 Under Minimum Wage Legislation,
the government aims to ensure
that wage rate of labour does not
fall below a particular level and
minimum wages are set above the
equilibrium wage level (as
discussed in case of price floor).