S Kumaraperumal

equilibrium
When QD

QS

QD

QS price

price

Larger the difference

greater the pressure to
price
When QD= QS Price is
stable

equilibrium
price

TQ S/month TQD/month

Supply or
shortage

12000

2000

+10000

10000

4000

+6000

7000

7000

4000

11000

-7000

1000

16000

-15000

Equilibrium between demand and supply

Law of demand

Law of supply
industry will offer more
Q of goods when price is
higher than at a lower price

Equilibrium
the level of price at
which the demand and
supply curve intersect
each other will finally
come to stay in the
market

Price

Demand

Supply

Excess
Supply

fall in price, Q
demanded rises and vice versa

PH
P
PL

Equilibrium point
ExcessDemand
Quantity

Equilibrium between demand and supply

At eq price both parties

satisfied
If price

Eq price then some

of the sellers may not able to
sell all
Dispose at lower price
Price go down to meet eq price

If Eq price

price the buyers

would not able to get the
required Q
Ready to buy at higher price
Price goes up to meet Eq price

Away from eq
price

Real world

Agri market- farmers use

political pressure to obtain
higher than eq price
labour market- social
pressure
often offset economic
pressure
strike-jobless cant get
strikers job
Price ceiling and price
flooring

Time element in
theory of price
Price determinants
are both demand,
supply and
time( Marshall)

Both demand and supply

depends on time that allowed
price to adjust
Supply takes time to adjust itself
to a change in the demand
condition
Three time categories
market period
short period
long period

Determination of Perishable goods

market price
inelastic perfectly
Market period

vertical straight line

Very short period

Price

supply

Supply is fixed

Demand

Supply is limited to
existing stock of the good
Change in demand
produces changes in
price when supply is
constant

Determination of durable goods

market price

Market period
When price of durable
goods are decrease with
decrease in demand
Supply can be decreased
by keeping source
quantity in inventory
Supply can be increased
out of the given stock if
its demand and price
increase

inelastic perfectly vertical

straight line
Price

supply

Max
Price
(entire
Supply
offer for
sale)

Demand
Reserve
price
O

Determination of
Firms will stop to supply till
market price

Long run price

(normal price)

they get price that cover

their variable costs
supply

Price

SRS

Determined by long
run equilibrium
Demand

Price is determined by both

supply and demand

Determination of
Firms will stop to supply till
market price

Short run price

(short period
normal price)

they get price that cover

their variable costs
supply

Price

MPS

SRS

Firms keep producing

even if they are not
able to cover ATC
If not they lose their
fixed cost

Demand

Price is determined by both

supply and demand

surplus

Consumer surplus
The difference between the
amount of money that a
consumer actually pays to buy
and willing to pay for the same
quantity

P
Consumer
surplus
Producer
surplus

Producer surplus

the excess of market price at

which producers sell the
quantity of a commodity above
the minimum price at which
they would be willing to supply
it.