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8/10/2019 equilibrium and determination of price.ppt
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S Kumaraperumal
8/10/2019 equilibrium and determination of price.ppt
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equilibriumWhen QD QS price
QS QD price
Larger the diferencegreater the pressure toprice
When QD= QS Price isstable
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equilibriumprice TQ S/month TQD/month Supply orshortage
5
4
3
2
1
12000
10000
7000
4000
1000
2000
4000
7000
11000
16000
+10000
+6000
0
7000
15000
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Equilibrium between demand and suppl
Law o! demand
!all in price" Qdemanded rises and #ice #ersa
Law o! suppl
industr will ofer moreQ o! goods when price ishigher than at a lower price
Equilibrium
the le#el o! price at
which the demand andsuppl cur#e intersecteach other will $nallcome to sta in themar%et
&
Quantity
Price SupplyDemand
Excess
Supply
ExcessDemand
P
PH
PL
Equilibrium point
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't eq price both partiessatis$ed
(! price Eq price then someo! the sellers ma not able to
sell allDispose at lower price
Price go down to meet eq price
(! Eq price price the buerswould not able to get therequired Q)ead to bu at higher price
Price goes up to meet Eq price
Equilibrium between demand and suppl
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'wa !rom eq
price
)eal world
'gri mar%et* !armers usepolitical pressure to obtainhigher than eq price
labour mar%et* social
pressure
o!ten ofset economicpressure
stri%e*+obless can,t getstri%er,s +ob
Price ceiling and price-ooring
8/10/2019 equilibrium and determination of price.ppt
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.ime element intheor o! price
Price determinantsare both demand"suppl andtime/ 0arshall1
Both demand and supplydepends on time that allowed
price to adjust
Supply takes time to adjust itselfto a change in the demandcondition
Three time categoriesmarket period
short period
long period
8/10/2019 equilibrium and determination of price.ppt
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Determination o!
mar%et price0ar%et period
2er short period
Suppl is $3ed
Suppl is limited toe3isting stoc% o! the good
!hange in "eman"pro"uces changes inprice #hen supply isconstant
Perishable goods
inelastic 4per!ectl#ertical straight line
Q
Price supply
Demand
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Determination o!
mar%et price0ar%et periodWhen price o! durablegoods are decrease withdecrease in demand
Suppl can be decreasedb %eeping sourcequantit in in#entor
Suppl can be increasedout o! the gi#en stoc% i$its "eman" an" priceincrease
durable goods
inelastic 4per!ectl #erticalstraight line
Q
Price supply
Demand
O
Reserve
price
Max
Price
(entire
Supply
offer for
sale)
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Determination o!
mar%et priceLong run price/normal price1
Determined b longrun equilibrium
Firms will stop to supply till
they get price that covertheir variable costs
Price is determined by bothsupply and demand
Q
Price
supply
Demand
O
SRS
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Determination o!
mar%et priceShort run price/short periodnormal price1
5irms %eep producinge#en i! the are notable to co#er '.6
(! not the lose their$3ed cost
Firms will stop to supply till
they get price that covertheir variable costs
Price is determined by bothsupply and demand
Q
Price
supply
Demand
O
MPS SRS
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surplus
6onsumer surplusThe dierence between the
amount of money that aconsumer actually pays to buyand willing to pay for the samequantity
Producer surplus
the ecess of market price at
which producers sell thequantity of a commodity abovethe minimum price at whichthey would be willing to supplyit!
Consumer
surplus
Producer
surplus
Q
P
0