LECTURE 4 -EQUILIBRIUM.pdf - Lecture 4 Price Theory Market...

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Lecture 4 Price Theory Market Equilibrium
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Market Equilibrium- Outline In this topic, you will learn The price mechanism The equilibrium price and quantity Price regulation: Price ceiling and price floor Government intervention: Tax and subsidy Consumer & Producer Surplus
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Market Equilibrium As in the previous two(2) topics on demand and supply: Consumers‟ intentions are reflected by the demand schedule/curve Firms‟ intentions are reflected by the supply schedule/curve What happens if they interact with one another?
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Market Equilibrium If the consumers and firms can agree with one another at certain conditions, an exchange may take place. The agreement can take place in an environment in which there is enough information available to both parties.
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Market Equilibrium The environment which allows for such agreement will take place when “The intentions of the consumers are reconciled with the intentions of the firms at a price level”
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Market Equilibrium Therefore, The consumers‟ willingness and ability to pay are reconciled with the firms to supply at that price level. An agreement is reached and goods and services are exchanged.
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Market Equilibrium In summary, it means that At a particular price level Market demand = Market Supply For e.g. At RM10.00, the market demand for T-shirt is 500 units and the firm is also willing to supply 500 T-shirts at that price.
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Market Equilibrium Market price (RM) Quantity (units) D S E 10 500 0
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