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S Kumaraperumal

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Equilibrium between demand and supply

Law of demand

fall in price, Qdemanded rises and vice versa

Law of supplyindustry will offer more

Q of goods when price is higherthan at a lower price

Equilibrium

the level of price atwhich the demand andsupply curve intersect eachother will finally come to

stay in the market

Quantity

Price SupplyDemand

Excess

Supply

ExcessDemand

P

PH

PL

Equilibrium point

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At eq price both partiessatisfied

If price Eq price then some ofthe sellers may not able to sell all Dispose at lower price

Price go down to meet eq price

If Eq price

price the buyerswould not able to get therequired Q

Ready to buy at higher price

Price goes up to meet Eq price

Law of demand

fall in price, Qdemanded rises and vice versa

Law of supplyindustry will offer more

Q of goods when price is higherthan at a lower price

Equilibrium

the level of price atwhich the demand andsupply curve intersect eachother will finally come to

stay in the market

Equilibrium between demand and supply

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Time element in

theory of price

Price determinants areboth demand, supply andtime( Marshall)

Both demand and supply depends ontime that allowed price to adjust

Supply takes time to adjust itself to a

change in the demand condition

time categories

market period

short period

long period

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Determination of

market priceMarket period

Very short period

Supply is fixed

Supply is limited to existing

stock of the good

Change in demandproduces changes in pricewhen supply is constant

Perishable goods

inelastic perfectly verticalstraight line

Q

Price supply

Demand

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Determination of

market priceMarket period

When price of durable goodsare decrease with decrease indemand

Supply can be decreased bykeeping source quantity ininventory

Supply can be increased outof the given stock if itsdemand and price increase

durable goods

inelastic perfectly verticalstraight line

Q

Price supply

Demand

O

Reserve

price

Max

Price

(entire

Supply

offer for

sale)

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Determination of

market priceShort run price (shortperiod normal price)

Firms keep producing evenif they are not able to cover

ATC

If not they lose their fixedcost

Firms will stop to supply till they

get price that cover theirvariable costs

Price is determined by bothsupply and demand

Q

Price

supply

Demand

O

MPSSRS

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Determination of

market priceLong run price(normal price)

Determined by long runequilibrium

Firms will stop to supply till they

get price that cover theirvariable costs

Price is determined by both supplyand demand

Q

Price

supply

Demand

O

SRS