UNIT - 2: DETERMINATION OF PRICES
In
open CompetitiveMarket, Intractionbdemand esupto
↓
Oty demanded Oty supplied.
=
>
Eg price
.
=
Market clearing price
> At
this
price ,
there is no unsold stock
Eg =
Price (E) Demand Supply
Cunits] Curits]
I 60 5
Shortage
Ep. Ple C35 =
350Eg Cty
M
.
.
3 20 45 >
Surplus
>
-
In case
of Shortage (Cty Demanded Oy supplieda
In of Surplus (Cty Cty
Demanda
supplied
>
-
case
XY
S
3- ·<
Surplus so
Pie 2 ↑.E
1 - ·
Shortage ,A
D
>X
O 5 35 60
City
>
Equilibriuis Sto Stable if any disturbanceo it is
original equilibrium
is
restored L other things are constant) .
>
Change in Demand &
Supply
other than Price
=
Change due to
factors .
.
1
Sucrease in Demand
xY
At current
price002 OP S
9D . ↑
=
Q5 =
09 Pi · E,
9D .
> QS
. .
P E ·
Shortage
>
>Shortage Da
Prices ↑- > Op, &
o' >X
Contraction & 9. Q2
in Demand
Expansion
Curve
in
Supply
curve
Equil
Eg. Price-O,
> New =
↑
in Eg. Price
Oty
Eg
~
in
.
2) Decrease in Demand
NY
At
priceOP
S
Q
PS .
=
0Q L
P E
OS . 0 D
& ·
Pr Es
.
>
Surplus
Pe ~-
> Op , S
Di
D
O 7X
&& , &
Contraction in
Expansioni luive
Supply curve .
price
E
New
Equilib .
-
=Ep
.
in Eg Price
~
.
~ in Eg
. Oty
3) Increase in
Supply
,
Improvement in
Technology
xY S
At priceO OD SI
&S =
002
D S. > Q D
. .
P E ·
"Surplus
P, ·
El
Surplus D
>
Prices ·
OP , 7X
O Q2
& &
Contraction
V
Exp ansion iD in
Demand curve
Supply curve
Ec
New
Equilibrium -
Ep price - O
InEq . Please
Decrease
Supply
· in
Y
S, S
At price OP ,
Q D 00.
.
=
El
9 5 = 002
·
. ·
X
E
00 .
.
> QS
. .
Shortage
Prices" -
OP ,
D .
7X
O 92Q, Q
Contraction
Demand curve
in
Expansion in
SupplyCurve
New Eg .: El
Eq price
.
Eg Price "
.
Eq Cty
.
Simultaneous in Demand &
change Supply
-
>
Shift in the same direction .
-Suc in Demand .
Onc .
in
Supply
XY
Price a S
New Eg .Price =
Old Eq . D,
Si
J
Eq Oty" from
.
OQ to OQ, E
P Es
D
D X
& O
.
2 Inc . in Demand Inc in
Supply
Skitage -Y0Di S
7
New Eg Price-OP,
higher than 1)
. P, Es
Old Ep Price OP
·
. P
Eq
. Oty" from OQ to O &,
Si
& O,
.
3 -in Demand ~
in
Supply
surplus XY Sl
S
Eg Price
. - ,
from Op to OP,
Eq OQ PP
E
. City ~ ,
from OQ to ,
&
0
p,
7X
& Q
Demand
4 .
in
Supply in
D,
Surplus # S
Si
Eq price
.
from -,
OP to OP
E
Eq
. Oty" from OD to , OQ p · Es
D
I
X
G
& 9 ,
5 in Supply -
in Demand
Sytage XY SS
&
.
g
Price t from
.
Op to OP
Pi
Eg
⑧
. City 1 from
, OD to OQ P
S
5
0,
O 2X
& Q
PossibleOutcomeWhen supply
& demand shi
a is
1) Both Demand & ↑
Eq
Supply
Oty ↑ =
but
>
.
,
in Price is
change uncertain.
Otyis tain.
Both Demand & ↓
2)
Eq
Supply
Cty
L
> .
but ,
change in Price is Uncertain .
>
Shift in the
opposite Direction .
1 .
↑in Demand in ~
Supply
- Si
XY S
Eq
.
Price ↑ .
from Op to Ope
Shortage Pi &
P
Eq
. Oty ↑ from OG to OG 1
Di
D
> X
j
99
Demand
Supply
.
2
"
in in
X Si
&
S
Shortage P ·
Eq Price"
. from Op to OP , P
Eg
. Oty ↓ from OG to OQ ,
B
g 7X
99
Demand "
.
3 in in
Supply
rY SS .
Surplus
Eq Price t
. ,
fromOp to Op ,
P
Eg
. City from Of to OQ ,
P, ·
⑧
Di
2X
O & Q
Demand
4 in
Supply ~ in
-Y
S
Si
Surplus
Eq Price,
. from OP to OP,
P
E
. Cty ↑
from OO to OD ,
Pi ⑨
D
0
,
8 2X
& Q,
2
possible outcomes when
Supply & demand curve
direction
shift in
opposit :
1 Demand " & Supply Shortage
Eq Price
>
.
but ,
be said about
change Eg Oty.
in
nothing certain can .
Demand, &Supply Surplus
.
2 is
but ,
be said about
change Eg Oty.
in
nothing certain can .
X X
Unit over :
=