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Politeknik Microeconomics

1) Market equilibrium occurs where quantity demanded equals quantity supplied and there is no tendency for prices or quantities to change further. 2) A shortage exists when quantity demanded exceeds quantity supplied, causing prices to rise until equilibrium is reached. A surplus exists when quantity supplied exceeds quantity demanded, causing prices to fall until equilibrium is reached. 3) The equilibrium price and quantity can change if demand or supply changes, with the direction and magnitude of the changes determining the new equilibrium point.

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1K views6 pages

Politeknik Microeconomics

1) Market equilibrium occurs where quantity demanded equals quantity supplied and there is no tendency for prices or quantities to change further. 2) A shortage exists when quantity demanded exceeds quantity supplied, causing prices to rise until equilibrium is reached. A surplus exists when quantity supplied exceeds quantity demanded, causing prices to fall until equilibrium is reached. 3) The equilibrium price and quantity can change if demand or supply changes, with the direction and magnitude of the changes determining the new equilibrium point.

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Sno Xthree
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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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CHAP

TER 3:
MARK
ET
EQUIL
IBRIU
M
Price
(RM)

DEFINITION:- When quantity demanded and


quantity supplied are equal and there is no
tendency for price or quantity to change.

Quantity
demande
d
(units)

Quantity
supplied
(units)

5
4
3

2
4
6

10
8
6

2
1

8
10

Market conditions
( Surplus (+) or Shortage (-) )
10 2 = 8
84=4
66=0

Surplus
Surplus
Equilibrium

Falls
Falls
Equilibrium

4
4 8 =-4
Shortage
Rises
2
2 10 = -8
Shortage
Rises
Quantity of Pilot pens and equilibrium price
(METHOD 1)

SURPLUS
Price
5-

4-

X SS

321-

Market
prices

X
X

SHORTAGE

0-

DD

Quantity
2

10

Market equilibriums graph for Pilot pens (METHOD 2)

Market Equilibriums graph(METHOD 3)

(1)
(2)
Qd = Qs
a bP = c+dP
MICROECONOMICS
3: MARKET EQUILIBRIUM

Qd
36 4P

Qs

15 + 3P
CHAPTER

Qd = 36 4P

36 4(3)

15 + 3(3)

36 12

15 + 9

Qs = 15 + 3P
units

=24 units

Qd = Qs

Price

=24

(3)

36 4P = 15 + 3P

D S

Qd = Qs
36 4P = 15 + 3P

36 15 = 3P + 4P
21 = 7P

21
7

Quantity

24

3=P
RM 3

SHORTAGE EXIST

Where the quantity demanded is greater than the quantity


supplied.
As the price rises, the quantity demanded by the buyers will
decline (law of demand) and the quantity supplied will increase
(law of supply) until it reaches an equilibrium where there is no
shortage.

SURPLUS EXIST

Where the demanded and quantity supplied in a market, where


the quantity supplied is greater than the quantity demanded.
As the price falls, the quantity demanded by the buyers will
increase (law of demand) and the quantity supplied will decrease
(law of supply) until it reaches an equilibrium where the surplus is
no longer.
The invisible hand (price mechanism) in the market removes any
shortage or
surplus and leads to
market
equilibrium.

CHANGE IN
DEMAND

MICROECONOMICS
3: MARKET EQUILIBRIUM

CHAPTER

Price
S
P2

P*
P2

D1D1
DD

D2D2
Q2

Q*

Quantity
Q2

CHANGE IN
SUPPLY
Price

S2S2
DD SS

P2

S1S1

P*

P2

Quantity
Q2

MICROECONOMICS
3: MARKET EQUILIBRIUM

Q*

Q2

CHAPTER

EFFECT
OF
CHANGE D1D1
IN
S1S1
A
DEMAND
E1
AND
SUPPLY

Price
SS
DD

E
EP = (=)

EQ =

Quantity
10

12

Increase in demand and increase in supply (same


magnitude)

Price
DD
S1S1

D1D1
5

SS
EP = (=)

E1

EQ =

Quantity
8

10

Increase in demand and increase in supply (different


magnitude)

MICROECONOMICS
3: MARKET EQUILIBRIUM

CHAPTER

Price

D1D1

SS
DD

S1S1
6

E1
EP =

EQ =

Quantity
10

15

Increase in demand and increase in supply (different


magnitude)

Price

D1D1
DD

E1

SS
EP =

S1S1
Small amount

EQ =

Large amount

Quantity
10

15

Increase in demand and increase in supply (different


magnitude)

MICROECONOMICS
3: MARKET EQUILIBRIUM

CHAPTER

Price

DD
D1D1

SS

E1

S1S1
EP =
E
EQ =

Small amount
Large amount

Quantity
7

10

Decrease in demand and decrease in supply (different


Magnitude)

Price

DD
D1D1

SS

S1S1
EP =

Small amount

EQ =

Large amount

Quantity
7

10

Decrease in demand and decrease in supply (different


magnitude)

MICROECONOMICS
3: MARKET EQUILIBRIUM

CHAPTER

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