1. UNIT - 4
MARKET EQUILIBRIUM

2. MEANING OF SUPPLY
Supply is the amount of a product ie. offered by the producers of that particular product to the market.
Supply of the product refers to the various amounts which are offered for sale at a particular price during a given period of time.
STOCK is the total volume of a commodity which can be brought into the market for sale at a short notice and supply means the quantity which is actually brought in the market.

3. Quantity supplied in units
SUPPLY SCHEDULE
It’s a tabular representation of different quantities of a commodity supplied at varying prices.
Price in Rs.
Quantity supplied in units

4. Quantity supplied in units
MARKET SUPPLY SCHEDULE
Quantity supplied in units
Price in Rs.
Total (A+B+C)
A B C OO

5. LAW OF SUPPLY
As the price of product increases, its quantity supplied will be increases & vice – versa. Other things remaining constant.
FEATURE
Direct relationship between price and supply.
Price is independent & supply is dependent variable.
Other things (no of firms, scale & speed of production, techniques, cost of production, market price of other related goods etc. ) being constant.

6. SUPPLY CURVE y S’ P1 P2
PRICE
Q Q X
QUANTITY SUPPLIED

7. EXCEPTIONS OF LAW OF SUPPLY
If seller is badly in need of money.
If seller wants to get rid of the product.
when heavy fall in price is anticipated.
In case of auction, auctioneer is not interested.

8. SHIFT IN A SUPPLY CURVE
When supply of a product changes only due to a change in the price of that product alone, it is called either expansion or contraction in supply.

9. INCREASE IN SUPPLY
It implies more supply at the same price or same quantity of supply at a lower price.
S S1
P P’
PRICE
QUANTITY SUPPLIED

10. DECREASE IN SUPPLY
It implies that less quantity is supplied at the same price or same quantity is supplied at a higher price.
Y S S
P’ P
price
Quantity supplied

11. DETERMINANTS OF SUPPLY
Natural factors
Change in techniques of production
Cost of production
prices of related goods
Government policy
Number of sellers of firms
Complementary goods

12. Discovery of new sources of inputs
Improvements in transport and communication
Future rise in prices

13. SUPPLY FUNCTION S = f (P) Sx = f (Pf, T, Cp, Gp, N……… etc ) Where
Sx = supply of a given product X
Pf = price of factor input
T = Technology
Cp = cost of production
Gp = govt. policy
N = number of firms

14. ELASTICITY OF SUPPLY
It refers to the sensitiveness or responsiveness of supply to a given change in price.
Es = % change in supply / % change in price

15. TYPES OF ELASTICITY
PERFECTLY ELASTIC SUPPLY
ES =∞
PRICE
SUPPPLY

16. PERFECTLY INELASTIC SUPPLY
Y S
S X
PRICE
ES = 0
SUPPLY

17. RELATIVELY ELASTIC SUPPLY
PRICE
ES > 1 S X
SUPPLY

18. RELATIVELY INELASTIC SUPPLY
PRICE
ES < 1 S X
SUPPLY

19. UNITARY ELASTIC SUPPLY
PRICE
ES = 1 S X
SUPPLY

20. MARKET EQUILIBRIUM
Market equilibrium is a state of balance at which the supply of all firms fulfills the demand of all consumers.
Demand of all consumers & the supply of all firms together determine the price of a commodity in the market.
At a point where supply and demand curve intersect with each other, the equilibrium price is established.

21. At equilibrium point, quantity demanded equals to the quantity supplied.

22. Y S D
PRICE E S D X
Q. SUPPLIED & Q. DEMANDED

23. CHANGE IN EQUILIBRIUM Due to shift in demand curve
Due to shift in a supply curve
Due to shift in both demand & supply curve