Definition-There is no tendency for price @ qtty to change ( price & qtty are stable )- A market is in equilibrium when the market DD curve and the market SS curve intersect

Market Equilibrium

- Refer to the interaction between DD and SS in the market ( Qd = Qs )

- Price at the point of equilibrium (equilibrium price)

- Qtty at the point of equilibrium (equilibrium qtty)

* the point of equilibrium is not stable or permanent*

Condition For Market Equilibrium

When, Qd = Qs (market will not be in equilibrium)this

may happen in 2 circumstances :-a) Excess SS ( Surplus )b) Excess DD ( Shortage )

Qd = Qs

Excess SS @ Surplus

- Three important effects:-a) Pb) Qs will contract ( Qs )c) Qd will expand ( Qd )

Qs > Qd

Excess DD @ Shortage

- Three important effects:-a) P b) Qd will contract ( Qd )c) Qs will expand ( Qs )

Qd > Qs

Determination Of market Equilibrium

- Three methodsi) Numerical Analysisii) Graphical Analysisiii) Mathematical analysis

Qd = Qs

a- bP = c + dP

Effects of changes in DD on M’E

Increase DD

Decrease DD

DD ; Fixed SS ; equilibrium P & Qtty

DD ; Fixed SS ; equilibrium P & Qtty

Effects of changes in SS on M’E

Increase SS

Decrease DD

SS ; Fixed DD ; eP ; eQ

SS ; Fixed DD ; eP ; eQ

Effects of changes in DD & SS on Equal Magnitudes on Market Equilibrium

- Four situations :-a) DD & SS in equal magnitudes

b) DD & SS in equal magnitudes

c) DD & SS in equal magnitudes

d ) DD & SS in equal magnitudes

a) DD & SS in equal magnitudes

b) DD & SS in equal magnitudes

DD & SS ; eQ ; constant eP

DD & SS ; eQ ; constant eP

c) DD & SS in equal magnitudes

d ) DD & SS in equal magnitudes

DD & SS ; eP ; constant eQ

DD & SS ; eP ; constant eQ