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Lecture-5, Topic-Market Equilibrium, Chapter 3-Demand and Supply

The key points are: [1] Equilibrium occurs when the quantity demanded equals the quantity supplied at a single price, balancing buyer and seller plans. [2] If the price is above equilibrium, excess supply causes it to fall. If below, excess demand causes it to rise. [3] Changes in demand or supply shift these curves and impact equilibrium price and quantity in predictable ways.

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32 views14 pages

Lecture-5, Topic-Market Equilibrium, Chapter 3-Demand and Supply

The key points are: [1] Equilibrium occurs when the quantity demanded equals the quantity supplied at a single price, balancing buyer and seller plans. [2] If the price is above equilibrium, excess supply causes it to fall. If below, excess demand causes it to rise. [3] Changes in demand or supply shift these curves and impact equilibrium price and quantity in predictable ways.

Uploaded by

rashiqul rijve
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Part Two: How Markets Work

Chapter 3: Demand and Supply


Objectives

 After studying this chapter, you will be able to:


 Describe a competitive market and think about a price as
an opportunity cost
 Explain the influences on demand
 Explain the influences on supply
 Explain how demand and supply determine prices and
quantities bought and sold
 Use demand and supply to make predictions about
changes in prices and quantities
LECTURE 5
Chapter 3: Demand and Supply
Topic: Market Equilibrium
Date: 04-02-2019
Market Equilibrium

 Equilibrium is a situation in which opposing forces


balance each other. Equilibrium in a market occurs when
the price balances the plans of buyers and sellers.
 The equilibrium price is the price at which the quantity
demanded equals the quantity supplied.
 The equilibrium quantity is the quantity bought and
sold at the equilibrium price.
 Price regulates buying and selling plans.
 Price adjusts when plans don’t match.
Market Equilibrium
 Price as a Regulator
 Figure 3.7 illustrates the
equilibrium price and equilibrium
quantity in the market for CD-Rs.
 If the price of a disc is $2, the
quantity supplied exceeds the
quantity demanded and there is
a surplus of discs.
Market Equilibrium
If the price of a disc is $1, the
quantity demanded exceeds
the quantity supplied and
there is a shortage of discs.

If the price of a disc is $1.50,


the quantity demanded
equals the quantity
supplied and there is
neither a shortage nor a
surplus of discs.
Market Equilibrium
 Price Adjustments
 At prices above the
equilibrium, a surplus forces
the price down.
 At prices below the
equilibrium, a shortage forces
the price up.
 At the equilibrium price,
buying plans selling plans
agree and the price doesn’t
change.
Market Equilibrium

 Because the price rises if


it is below equilibrium,
falls if it is above
equilibrium, and remains
constant if it is at the
equilibrium, the price is
pulled toward the
equilibrium and remains
there until some event
changes the equilibrium.
Predicting Changes in Price and
Quantity
 A Change in Demand
 Figure 3.8 shows the effect
of a change in demand.
 An increase in demand
shifts the demand curve
rightward and creates a
shortage at the original
price.

The price rises and the


quantity supplied increases.
Predicting Changes in Price and
Quantity
 A Change in Supply
 Figure 3.9 shows the
effect of a change in
supply.
 An increase in supply
shifts the supply curve
rightward and creates a
surplus at the original
price.

The price falls and the


quantity demanded
increases.
Predicting Changes in Price and
Quantity
 A Change in Both Demand and
Supply
 A change both demand and
supply changes the equilibrium
price and the equilibrium
quantity but we need to know
the relative magnitudes of the
changes to predict some of
the consequences.
Predicting Changes in Price and
Quantity

 Figure 3.10 shows the


effects of a change in
both demand and supply
in the same direction.
 An increase in both
demand and supply
increases the equilibrium
quantity but has an
uncertain effect on the
equilibrium price.
Predicting Changes in Price and
Quantity
 Figure 3.11 shows the effects
of a change in both demand
and supply when they change
in opposite directions.
 An increase in supply and a
decrease in demand lowers
the equilibrium price but has
an uncertain effect on the
equilibrium quantity.
END

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