Class Notes

Market Equilibrium

1. Market Equilibrium It is a situation of the market in which demand for a commodity is exactly equal to its supply.

2. Equilibrium Price Which corresponds to the quantity between market demand and market supply of a commodity.

3. Equilibrium Quantity Which corresponds to the equilibrium price in the market.

4. Excess Demand If at any price demand is greater than market supply. it is said excess demand in the market.
Yd > Ys
Here, Ys = Market supply
Yd = Market Demand

5. Excess Supply If at any price market supply is greater than market demand. it is said excess supply in the market.

Ys > Yd
Here, Ys = Market supply
Yd = Market Demand

6. Non-viable Industry The industry for which demand curve and supply do not intersect each other at any positive quantity is called non-viable industry.

7. Viable Industry In case of viable industry supply and demand Curve must Intersect at same point.

8. Price ceiling Price ceiling means maximum price of a commodity that the seller can charge from the buyers
the government fixes this price much below the equilibrium market price of a commodity. so that, it. becomes within the reach of the poorer sections of the society.

9. Price Floor It means the minimum price fixed by the government for a commodity in the market. It seems
(i) Each firm employs labour up to the point where the marginal revenue product of labour equals the wage rate.
(ii) With supply curve remaining unchanged when demand curve shifts rightward (leftward). the equilibrium quantity increases (decreases) and equilibrium price increases with fixed number of firms.
(iii) With demand curve remaining unchanged when supply curve shifts rightward (leftward), the equilibrium quantity increases (decreases) and equilibrium price decrease (increases) with fixed number of firm.

10. Effect of a Simultaneous Change in Demand and Supply on Equilibrium Price 
(i) When demand increases more than supply, equilibrium price will increase.
(ii) When demand and supply increases equally, equilibrium price remain constant.
(iii) When supply increases more than demand, equilibrium price falls.

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