EQUILIBRIUM IN THE SHORT PERIOD
• Short Period is relatively longer as compared to
the market period.
• The supply of a commodity can be adjusted to
the demand in a short period within the existing
capacity of the plant and equipment.
• Some factors input are fixed and their size
cannot be increased or reduced.
• When the demand for the commodity increase
in the short period, the price will increase
immediately because it is not possible to
respond immediately to the increased demand.
EQUILIBRIUM IN THE SHORT PERIOD....
• It takes some time to use the existing plant and
equipment more intensively.
• Till then, the price will be high.
• Once the existing capacity is expanded and the
supply increase, the price goes down to adjust
• The short period market price will be higher than
the original market price because more factors
input will have to be hired, perhaps, at a higher
cost to expand production.
• But the price will be lower than the market price
(when compared to the new market price after the
increase in demand)
• DD is the demand curve and
SS the supply curve.
• They intersect at point E and
the equilibrium prices is OP.
• When the demand curve
shifts from DD to D1D1 due an
increase in the demand, the
supply curve adjust itself and
the new equilibrium price be
OP1 and the new quantity
will be OQ1.
• Likewise, when the demand
increase, the supply will also
get adjusted and the new
equilibrium price (when the
demand curve shifts to D2D2
to the left) will be OP2
• Thus, in the short period,
it is possible to increase
or reduce the supply and
a change in the demand
will not impact the price
as significantly as in the
case of the market