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    The Concept of Market Equilibrium

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    Kokila Ambigae
    Market equilibrium occurs at the price where the quantity demanded equals the quantity supplied. This equilibrium price determines the equilibrium quantity in the market. When demand or supply changes, the equilibrium price and quantity adjust accordingly to clear the market. The government can intervene in markets through price controls like price ceilings, which limit the maximum price that can be charged, or price floors, which limit the minimum price. These controls aim to protect consumers or producers but can lead to shortages or surpluses in the market from the new equilibrium.

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    The Concept of Market Equilibrium

    Uploaded by

    Kokila Ambigae
    134 views13 pages
    Market equilibrium occurs at the price where the quantity demanded equals the quantity supplied. This equilibrium price determines the equilibrium quantity in the market. When demand or supply changes, the equilibrium price and quantity adjust accordingly to clear the market. The government can intervene in markets through price controls like price ceilings, which limit the maximum price that can be charged, or price floors, which limit the minimum price. These controls aim to protect consumers or producers but can lead to shortages or surpluses in the market from the new equilibrium.

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    Market Equilibrium

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    Market equilibrium occurs at the price where the quantity demanded equals the quantity supplied. This equilibrium price determines the equilibrium quantity in the market. When demand or supply changes, the equilibrium price and quantity adjust accordingly to clear the market. The government can intervene in markets through price controls like price ceilings, which limit the maximum price that can be charged, or price floors, which limit the minimum price. These controls aim to protect consumers or producers but can lead to shortages or surpluses in the market from the new equilibrium.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    134 views13 pages

    The Concept of Market Equilibrium

    Uploaded by

    Kokila Ambigae
    Market equilibrium occurs at the price where the quantity demanded equals the quantity supplied. This equilibrium price determines the equilibrium quantity in the market. When demand or supply changes, the equilibrium price and quantity adjust accordingly to clear the market. The government can intervene in markets through price controls like price ceilings, which limit the maximum price that can be charged, or price floors, which limit the minimum price. These controls aim to protect consumers or producers but can lead to shortages or surpluses in the market from the new equilibrium.

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    You are on page 1of 13

    The Concept of

    Market Equilibrium
    Understanding Market Equilibrium
    Market price is a price set by
    the interaction of supply and
    demand
    Equilibrium Price Equilibrium Quantity
    price at which the quantity output level that corresponds
    demanded by consumers to the equilibrium price
    and the quantity supplied
    by producers are the same
    P
    S

    (Qd=Qs)
    E
    Pe

    Qe Q

    http://www.cals.ncsu.edu/course/are012/readings/demand.html
    EXCESS DEMAND
    Shortage – an amount or extent of
    deficiency due to excess demand

    E
    Pe

    A B
    P1
    Shortage
    Qd>Qs
    D
    QS Qe QD
    EXCESS SUPPLY
    Surplus - an amount or a quantity in
    excess of what is needed or demanded

    Surplus S
    Qd<Qs
    A B
    Pe

    E
    P1

    D
    QD Qe QS
    MARKET EQUILIBRIUM WHEN
    THERE IS A CHANGE IN DEMAND
    Ex 1. Decrease in no. of Consumers Ex 2. Increase in Income

    DEMAND : no. of consumers = purchases DEMAND: income = purchases/spending


    PRICE : demand = Prices PRICE: demand = Prices

    http://www.tutor2u.net/economics/revision-notes/as-markets-equilibrium-price.html
    MARKET EQUILIBRIUM WHEN
    THERE IS A CHANGE IN SUPPLY
    Ex 1. Increase in workers wages, Ex 2. Improved technology,

    SUPPLY : wages = cost of production SUPPLY : technology = production


    PRICE : supply = Prices PRICE : supply = Prices

    http://www.tutor2u.net/economics/revision-notes/as-markets-equilibrium-price.html
    PRICE
    Represents the agreement
    between the seller and the
    buyer in the market
    EFFECTS OF A

    PRICE
    CONTROL
    Role of the Government in
    pricing
    Effects of a Ceiling Price on Market
    Equilibrium
    S Protect the consumer from
    abuses of seller

    P0 E

    housewife

    Ceiling Price
    P1
    shortage
    D
    Q1 Q0 Q2
    • CEILING PRICE – the maximum selling price; it is a government-imposed
    limit on how high a price can be charged on a product
    Effects of a Floor Price on Market
    Equilibrium
    Help the producer recover
    surplus their production cost
    Floor Price S
    P1
    farmer

    P0 E

    D
    Q1 Q0 Q2

    • FLOOR PRICE – a price support; it is a government-imposed


    limit on how low a price can be charged on a product.
    GOVERNMENT
    Interferes in the market to
    help the consumers and
    producers

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