S o n u c h o w d h u r y

F a c u l t y - S a n g a m U n i v e r s i t y

MARKET EQUILIBRIUM

EQUILIBRIUM

The operation of the market depends on the interaction

between buyers and sellers.

An equilibrium is the condition that exists when quantity

supplied and quantity demanded are equal.

At equilibrium, there is no tendency for the market price

to change.

Market Equilibrium – Diagrammatic Representation

Only in equilibrium is

quantity supplied equal to

quantity demanded.

At any price level other

than P0, the wishes of

buyers and sellers do not

coincide.

Disequilibria: Prices Placed Above and Below

Market Price

when a firm tries to sell a good for more than its market value.

A firm charges a price that is below true market value

When the equilibrium is disturbed there can be two

situations:

Shortage - A situation where quantity demanded is in

excess of quantity supplied.

Surplus – A situation where quantity supplied is in excess

of quantity demanded.

Adjustments in the Market

The demand curve and the supply curve are the two

curves that comprise the market, each of which can

increase or decrease causing adjustments in the market.

S. No. Change in Demand Change in Supply

1. Increase No change

2. Decrease No change

3. No change Increase

4. No change Decrease

5. Increase Increase

6. Increase Decrease

7. Decrease Increase

8. Decrease Decrease

GOVERNMENT INTERFERENCE WITH MARKET

EQUILIBRIUM

The underlying objectives could be socio-economic in

nature, such as,

To keep a low price in the market in favor of the

consumer

To maintain certain income levels for the sellers

Price stability

Cases to refer

Drug price ceiling - DPCO

The MSP of Arhar (Tur) has been fixed at Rs. 4,300 per

quintal and of Moong at Rs. 4,500 per quintal marking an

increase of Rs. 450 per quintal and Rs. 100 per quintal

respectively over their MSP of last year.

Minimum support price of kharif crops raised by CCEA

(Cabinet committee on economic affairs.)

Suggested link

http://articles.economictimes.indiatimes.com/2013-06-28/news/40255961_1_cacp-msp-quintal

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