Equilibrium
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Transcript of Equilibrium
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FARAHA LUGMANMA-4222642
EQUILIBRIUM
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OVERVIEW Demand and supply Equilibrium in market
Equilibrium quantityEquilibrium price
Excess supply & demand How equilibrium point change? Summary of changes in equilibrium Conclusion References
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Demand
Demand is quantity of a commodity that the consumers are willing and able to buy at a given price over a given period of time
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Law of demand
• An inverse relationship exists between price & quantity demanded
» As price rises…..…..quantity demanded falls
» As price falls…......quantity demanded rises
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Demand curve
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Qty price
Qty product
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Supply
• Supply is the quantity of a commodity that the suppliers are willing able to offer for sale at a given price over a given period of time.
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Law of supply
• A direct relationship exists between price & quantity supplied
As price falls….
…..quantity supplied falls
As price rises….
…..quantity supplied rises
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Supply curve
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Qty price
Qty product
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Equilibrium in market
• It is where the market price has reached to a level at which quantity demanded is equal to quantity supplied
• Demand intersect the supply• The price at which quantity demanded and quantity
supplied is Equilibrium price• The quantity at which equilibrium arises is
Equilibrium quantity
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Equilibrium point in a Demand & Supply curve
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Equilibrium table
price Quantity demanded per week
Quantity supplied per week
$100 10 50$90 20 40$80 30 30$70 40 20$60 50 10
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Excess demand
• In shortage the price will be lower than the equilibrium price; on the other hand quantity demanded will exceed the quantity supplied
• To comeback
Supplier rise the price of goods
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Excess supply
• The surplus occurs when the price exceeds equilibrium price, on the other hand the quantity supplied would be greater than the quantity demanded
• To comebackSuppliers lower the price of good
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Changes in equilibrium point
• Graphically, changes in the underlying factors that affect demand and supply will cause shifts in the position of the demand or supply curve at every price.
• There are 4 basic causes of price change which would change the equilibrium point
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Changes in demand
1. Demand shifts to the right: increase in demand shift the demand curve to right, & raises price and output.
2. Demand shifts to the left: decrease in demand shifts the demand curve to the left, & reduces price and output
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Changes in supply
3. Supply shifts to the right: increase in supply shifts the supply curve to the right, which reduces prices and increase output
4. Supply shifts to the left: decrease in supply shifts the supply curve to the left, which raises price but reduces output
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Summary of changes in equilibrium
Shift Equilibrium price Equilibrium quantity
Demand increases Higher Higher
Demand decreases Lower Lower
Supply increases Lower Higher
Supply decreases higher lower
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Conclusion
• Demand is defined as the quantity of a good or service consumers are willing and able to buy at a given price in a given time period.
• Supply is defined as the quantity of a product that a producer is willing and able to supply onto the market at a given price in a given time period.
• Equilibrium is where the demand and supply intersect
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reference
• http://www.shmoop.com/supply-demand/equilibrium-price.html
• http://www.economicsonline.co.uk/Competitive_markets/Market_equilibrium.html
• http://thismatter.com/economics/market-equilibrium.htm
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THANK YOU