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Equalibrium Price

Equilibrium

• Equilibrium: 1. a state of rest or balance due to the equal action of opposing forces. 2. equal balance between any powers, influences,

• In a market an equilibrium is said to exist when the forces of supply [sellers] and demand [buyers] are in balance: the actions of sellers and buyers are coordinated. The quantity supplied equals the quantity demanded!

3

What is the meaning of Demand ?

• It refers different quantities which consumers are willing and able to purchase at different possible prices in a period of time.

Example Price Qty Demanded

1 50

2 40

3 30

4 20

5 10

Meaning of supply

• It Refers different quantities of a commodity that producers are willing to sale at different possible prices.

Example

Price Qty Supplied

1

2

3

4

5

50

40

3020

10

Determination of equilibrium price

It is determined by the market forces demand for and supply of the commodity

9

Demand curve

Demand

price

Dcd

R1

R2

F2F1

As the price incresesThe qty demanded decreses

supply curve

S/ut

F

$1

$3

2 4 6 8 10 12 14 16

supply

There is direct relation between price and supply of commodity

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10 20 30 40 50 60 70 80 90 100 110 120 130

1

2

3

4

5

6

70

8

9

10

f.Ex r

ate

Q

Demand

,

Supply

Where the Demand for and supply of is equal There the equl. Price and qty will be determined.

60

$7

At the equilibrium price , the qty supplied is

equal to the qty demanded.

THE END