Market Equilibrium - Demand and Supply Analysis Market Equilibrium Market What is a market It is defined as a mechanism by which buyers and sellers

Market Equilibrium - Demand and Supply Analysis Market...

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Demand and Supply Analysis Market Equilibrium
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Market What is a market? It is defined as a mechanism by which buyers and sellers interact to determine the price and quantity of goods and services. Features of market -There must be a commodity which is being demanded and sold. - There must be buyers and sellers of the commodity. - There must be communication between buyers and sellers. - There must be a place or area where buyers and sellers could interact with each other.
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Types of Market Perfect Competition, Monopoly Monopolistic Competition Oligopoly Duopoly etc… But more about these in the later units
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Market Equilibrium Forces of demand and supply determine the equilibrium price and equilibrium quantity in a perfectly competitive market. Quantity demanded = Quantity supplied
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Excess Demand and Supply Excess Supply A condition in which quantity supplied is Greater than quantity demanded. Surpluses occur only at prices above equilibrium price. Excess Demand A condition in which quantity demanded is greater than quantity supplied. Shortages occur only at prices below equilibrium price.
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Move to Market Equilibrium Market Equilibrium is a situation of zero excess demand excess supply.
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Consumer, Producer and Total Surplus Consumers Surplus (CS) CS= (Maximum buying price Actual Price paid)*Q The difference between the maximum price a buyer is willing and able to pay for a good or service and the price actually paid. Producers’ (Sellers’) Surplus (PS) PS = (Price received - Minimum Selling price)*Q The difference between the price sellers receive for a good and the minimum or lowest price for which they would have sold the good. Total Surplus (TS) TS = CS + PS The sum of consumers’ surplus and producers’ surplus.
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Consumer Surplus It is the difference between the maximum a consumer would pay for a good and the price actually paid. Consumer’s Surplus is the area above the price line and below the demand curve.
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Producer Surplus It is the difference between the minimum price a producer would accept to supply a given quantity of good and the price actually received. Producer’s Surplus is the area below the price line and above the supply curve.
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Total Surplus
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Market Equilibrium
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Change in Demand Changes in Demand takes place due to :- - changes in price of related goods.
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