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Market Equilibrium Analysis

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This presentation is used in my lecture on market equilibrium analysis(Managerial Economics-MBA). Your feedback is important for me. Thx My other work can be seen at www.educationpyramid.com

Text of Market Equilibrium Analysis

  • 1.Lecture-2 Managerial Economics Lecture Delivered byProf. Muhammad Azeemwww.azmeco.blogspot.com

2. Law of Demand www.azmeco.blogspot.comSlide-2 Assuming all other things held constant, with a decrease in the price of a good, the quantity demanded will increase. Assuming all other things held constant, with an increase in the price of a good, the quantity demanded will decrease. 3. Law of Demandwww.azmeco.blogspot.com Slide-3 P Qd D5 eP 1 12 dR 4 2 10 I c3 3 8C bE 2 4 61 a 5 40 4 6 8 10 12QUANTITY DEMANDED 4. Law of Supply www.azmeco.blogspot.comSlide-4 Assuming all other things held constant, with a decrease in the price of a good, the quantity supplied will decrease. Assuming all other things held constant, with an increase in the price of a good, the quantity supplied will also increase. 4 5. Law of Supplywww.azmeco.blogspot.com Slide-5 S P QsP 5 e 1 4R 4 d 2 6I3 cC 3 8E 2b1 4 10 a 5 12 0 468 10 12Quantity Supplied5 6. Market Equilibrium www.azmeco.blogspot.comSlide-6 Market equilibrium is point where buyers and seller reach the compromise and settle down the price of the commodity. At this price quantity demanded is equal to the quantity supplied. In diagram both curves intersect at this equilibrium level. This is a stable equilibrium. 6 7. Market Equilibriumwww.azmeco.blogspot.com Slide-7 P Qd Qs 1 124 2 106 388 46 10 5 412 7 8. Market Equilibrium www.azmeco.blogspot.comSlide-8Point e is market equilibrium point. P Qd QsS 1 12 4P54 2 10 6R e I 3 3 88C 2 E 4 6101D 5 4120 4 610 12 8Quantity8 9. Market Equilibrium is Stablewww.azmeco.blogspot.com Slide-9Due to shortage prices Price are pulled down to equilibrium point, and due to surplus prices D S are pushed up to equilibrium level. As a result market S>D equilibrium remains stable. PE D>SQuantityQ9 10. Mathematical Form of Market Equilibrium Model www.azmeco.blogspot.com Slide-10This is a simple mathematical form of market equilibrium model. Demand and supply Let curves are assumed to be linear. Slope of the both Qd = 14 - 2Pcurves is same. Qs = 2 + 2P D=S 11. Changes in Demand and Supplywww.azmeco.blogspot.comSlide-11 Balloon is hanging over the wall. It expands in the day and contracts in the night. This is an example of changes in the volume of balloon. This change is due to the air pressure inside the balloon. 11 12. Changes in Demand and Supply www.azmeco.blogspot.com Slide-12Hanging Balloon moves upward and downwards. Due to the change in the supporting thread. This is an example of changes in the level of height of balloon. This change is due to the change in the size of thread.12 13. Change in Quantity Demanded-Due to pricewww.azmeco.blogspot.comSlide-13PriceAn increase in pricecauses a decrease inquantity demanded.P1 bP0aQuantity Q1 Q013 14. Changes in Quantity Demanded-Due to price www.azmeco.blogspot.com Slide-14PriceA decrease in pricecauses an increase inquantity demanded. P0 ab P1QuantityQ0Q1 14 15. Changes in Quantity Supplied-Due to price www.azmeco.blogspot.com Slide-15A decrease in price Price causes a decrease in quantity supplied.P0 aP1 b QuantityQ1Q015 16. Changes in Quantity Supplied-Due to price www.azmeco.blogspot.com Slide-16 An increase in price causes an increase in Price quantity supplied.P1 bP0a Quantity Q0Q116 17. Shift Factors of Demand www.azmeco.blogspot.com Slide-17 Changes in Income of consumers Changes in Taste of the consumers Changes in the market size (no. of buyers) Changes in the price of related goods/services17 18. Changes in Demand - Due to shift factorswww.azmeco.blogspot.comSlide-18 Rise in demand shows a rightward shift in the market Price demand curve. D0 D1a b P0 Quantity Q0 Q1 18 19. Changes in Demand - Due to shift factors www.azmeco.blogspot.com Slide-19Fall in demand shows aleftward shift in the market Pricedemand curve. D1 D0ba P0Quantity Q1 Q019 20. Shift Factors of Supply www.azmeco.blogspot.com Slide-20 Changes in state of technology Changes in the prices of factors input Changes in the market size (no. of sellers) Changes in the Government policy (incentives)20 21. Changes in Supply - Due to shift factors www.azmeco.blogspot.com Slide-21Rise in supply shows arightward shift in the supply Pricecurve.S0S1 a b P0Quantity Q0 Q1 21 22. Changes in Supply - Due to shift factors www.azmeco.blogspot.com Slide-22 Fall in supply shows a leftward shift in the supply curve. PriceS1 S0 ba P0 Quantity Q1 Q022 23. Effects of Changes in Demand on Market Equilibrium Point www.azmeco.blogspot.com Slide-23 PriceRise in demand will causethe market equilibrium price D0D1 S0and quantity to increase. P1 E1P0E0 QuantityQ0 Q1 23 24. Effects of Changes in Demand on Market Equilibrium Pointwww.azmeco.blogspot.comSlide-24 Price Fall in demand will cause the market equilibrium priceD0 S0and quantity to decrease. P0E0P1 E1 QuantityQ1 Q0 24 25. Effects of Changes in Supply on Market Equilibrium Point www.azmeco.blogspot.com Slide-25 Rise in supply willPricecause the market equilibrium price toD0 S0decrease and quantity to increase. P0 E0 P1 E1QuantityQ0 Q1 25 26. Effects of Changes in Supply on Market Equilibrium Point www.azmeco.blogspot.com Slide-26PriceFall in supply will cause the market equilibrium price to D0S1S0increase and quantity to decrease. E1P1P0E0QuantityQ1 Q026 27. Effects of Simultaneous Changes in Demand and Supply www.azmeco.blogspot.com Slide-27 D D DD S S S S SSS S S27 28. Effects of Simultaneous Changes in Demand and Supply www.azmeco.blogspot.com Slide-28 DD DDSS S S SS12 3 5 S S S 4S = D 6 S = D 9 S = D 12 S = D 15 S D 7 S D 10S D 13 S D 16 S D 8 S D 11S D 14 S D 17 28 29. No Change in Demand and Supply www.azmeco.blogspot.com Slide-29 1 Price D0S0E P0 = 3Quantity Q0 = 829 30. No Change in Demand and Rise in Supply www.azmeco.blogspot.com Slide-30 2 PriceS0 D0 S1 E0 P0 = 3 P1 = 2 E1 Quantity Q0 = 8 Q1 = 1030 31. No Change in Demand and Fall in Supplywww.azmeco.blogspot.comSlide-31 3 Price S1 D0S0 E1 P1 = 4 P0 = 3 E0Quantity Q1 = 6 Q0 = 8 31 32. No Change in Supply and Rise in Demandwww.azmeco.blogspot.comSlide-32 4 Price D1D0S0 P1 = 4E1 P0 = 3 E0Quantity Q0 = 8Q1 = 10 32 33. No Change in Supply and Fall in Demandwww.azmeco.blogspot.comSlide-33 5 Price D0D1S0 P0 = 3E0 P1 = 2 E1Quantity Q1 = 6Q0 = 8 33 34. Rise in Demand Is Equal to Rise In Supply www.azmeco.blogspot.com Slide-34 6 Price D1 S0 S1D0 E0 E1 P0 = 3Quantity Q0 = 8 Q1 = 1234 35. Rise in Demand Is Less Than Rise In Supply www.azmeco.blogspot.com Slide-35 7 PriceD1S0 S1D0E0 P0 = 3 E1 P1 = 2 Quantity Q0 = 8 Q1 = 1435 36. Rise in Demand Is More Than Rise In Supplywww.azmeco.blogspot.comSlide-36Price D1 8D0S0 S1 P1 = 4E1E0 P0 = 3 QuantityQ0 = 8 Q1 = 14 36 37. Rise in Demand Is Equal To Fall In Supplywww.azmeco.blogspot.comSlide-37Price S0 S1 D0 D1 9 E1 P1 = 5 P0 = 3 E0 Quantity Q0 = 8 37 38. Rise in Demand Is Less Than Fall In Supply www.azmeco.blogspot.com Slide-38PriceD0D1S1 S0 10E1P1 = 5 P0 = 3E0QuantityQ1 = 6 Q0 = 838 39. Rise In Demand Is More Than Fall In Supply www.azmeco.blogspot.com Slide-39 Price D1S1 S0D011E1P1 = 5E0P0 = 3QuantityQ0 = 8 Q1 = 1039 40. Fall In Demand Is Equal to Rise In Supply www.azmeco.blogspot.com Slide-40 Price D1 D0 12 S0 S1 P0 = 3 E0P1 = 2E1Quantity Q0 = 840 41. Fall In Demand Is Less Than Rise In Supply www.azmeco.blogspot.com Slide-41 Price D1 D0 13S0 S1 E0P0 = 3 P1 = 1E1Quantity Q0 = 8 Q1 = 1041 42. Fall In Demand Is More Than Rise In Supplywww.azmeco.blogspot.comSlide-42 PriceD0 14D1S0 S1 E0P0 = 3E1P1 = 1QuantityQ1 = 6 Q0 = 8 42 43. Fall In Demand Is Equal To Fall In Supplywww.azmeco.blogspot.comSlide-43PriceD1D0 15S1 S0E1E0P0 = 3 QuantityQ1 = 4Q0 = 8 43 44. Fall In Demand Is Less Than Fall In Supply www.azmeco.blogspot.comPriceSlide-44 D0 D1S1 S016 E1P1 = 4E0P0 = 3Quantity Q1 = 4 Q0 = 844 45. Fall In Demand Is More Than Fall In Supplywww.azmeco.blogspot.comSlide-45PriceD0 17 D1 S1 S0E0 P0 = 3 P1 = 2E1 QuantityQ1 = 4Q0 = 8 45 46. Perfectly Inelastic Demand Curve And Changes In Supply www.azmeco.blogspot.com Slide-46 Price D S1 1 Perfectly S0Inelastic E1Demand P1 Curve S2 E0 P0E2 P2 QuantityQ46 47. Perfectly Inelastic Supply Curve And Changes In Demand www.azmeco.blogspot.com Slide-47 Price S2 Perfectly InelasticE1Supply P1Curve P0 E0 D1E2 P2 D0D2QuantityQ47 48. Perfectly Elastic Demand Curve And Changes In Supply www.azmeco.blogspot.com Slide-48 Price3 PerfectlyElastic DemandCurveS2 S0 S1 E1E0E2P D Q1Q0 Q2Quantity48 49. Perfectly Elastic Supply Curve And Changes In Demandwww.azmeco.blogspot.comSlide-49Price4Perfectly Elastic SupplyP1CurveP0 D1 D0 D2 E1 E0 E2P2SQ1Q0Q2 Quantity 49

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