Market equilibrium
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Transcript of Market equilibrium
![Page 1: Market equilibrium](https://reader035.fdocuments.us/reader035/viewer/2022081413/54637cf2af79596e3a8b55ea/html5/thumbnails/1.jpg)
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
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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*
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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
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Excess SS @ Surplus
- Three important effects:-a) Pb) Qs will contract ( Qs )c) Qd will expand ( Qd )
Qs > Qd
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Excess DD @ Shortage
- Three important effects:-a) P b) Qd will contract ( Qd )c) Qs will expand ( Qs )
Qd > Qs
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Determination Of market Equilibrium
- Three methodsi) Numerical Analysisii) Graphical Analysisiii) Mathematical analysis
Qd = Qs
a- bP = c + dP
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Effects of changes in DD on M’E
Increase DD
Decrease DD
DD ; Fixed SS ; equilibrium P & Qtty
DD ; Fixed SS ; equilibrium P & Qtty
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Effects of changes in SS on M’E
Increase SS
Decrease DD
SS ; Fixed DD ; eP ; eQ
SS ; Fixed DD ; eP ; eQ
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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
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a) DD & SS in equal magnitudes
b) DD & SS in equal magnitudes
DD & SS ; eQ ; constant eP
DD & SS ; eQ ; constant eP
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c) DD & SS in equal magnitudes
d ) DD & SS in equal magnitudes
DD & SS ; eP ; constant eQ
DD & SS ; eP ; constant eQ