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Understanding Equilibrium Price Dynamics

Chapter 9 discusses price discrimination and defines equilibrium price as the point where supply and demand are equal, exemplified by a price of $35. It explains how market forces drive prices toward equilibrium, correcting surpluses or shortages by adjusting prices until demand matches supply. The chapter includes diagrams to illustrate these concepts and the movement from market disequilibrium to equilibrium.

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Abid Hasan
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5 views8 pages

Understanding Equilibrium Price Dynamics

Chapter 9 discusses price discrimination and defines equilibrium price as the point where supply and demand are equal, exemplified by a price of $35. It explains how market forces drive prices toward equilibrium, correcting surpluses or shortages by adjusting prices until demand matches supply. The chapter includes diagrams to illustrate these concepts and the movement from market disequilibrium to equilibrium.

Uploaded by

Abid Hasan
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

Chapter 9

PRICE DISCRIMINATION
Equilibrium Price
• An Equilibrium price, also known as a market-clearing price,
is the consumer cost assigned to some product or service
such that supply and demand are equal, or close to equal. The
manufacturer or vendor can sell all the units they want to
move and the customer can access all the units they want to
buy. The equilibrium price of a product can be found by
comparing demand and supply schedules of that product, and
seeing where demand and supply are equal.
Demand and Supply Table
• In this case the equilibrium price is $35, since at this point
demand and supply are equal.
• The equilibrium price can also be found by examining a
demand and supply diagram. It occurs where the demand and
supply curves intersect.
• Figure 9.1 shows that the equilibrium price is P and the
equilibrium quantity is Q. Prices will stay at P and sales at Q
until demand and supply conditions change.
Moving from Market
Disequilibrium to Market
Equilibrium
• Market forces move price towards the equilibrium. If a firm
sets the price above the equilibrium level, it will not sell all of
the products it offers for sale - there will be a surplus (excess
supply). To ensure the firm sells all of the products it wants
to, it will lower price until the market clears, with the
quantity demanded equaling the quantity supplied. Figure
9.2 shows a market initially being in a state of disequilibrium
with supply exceeding demand.
Supply Exceeding Demand
Demand Exceeding Supply
Return to Equilibrium

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