Equilibrium

Equilibrium

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  12/3/2020 Dr. RakshaSingh EQUILIBRIUM Dr Raksha Singh Principal Shri Shankaracharya Mahavidyalaya
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  SYLLABUS 12/3/2020 Dr. RakshaSingh
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  Equilibrium संतुलन  “Equilibrium isderived from the Latin word aequilibrium which means equal balance  This word is imported from physics: Where it means a state of even balance in which opposing forces or tendencies neutralize each other 12/3/2020 Dr. Raksha Singh
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  Equilibrium  “Equilibrium isa state of balance in an economy, and can be applied in a number of contexts. In micro- economics, market equilibrium price is the price that equates demand and supply.”  “In macro-economics, national income is in equilibrium when aggregate demand (AD) equals aggregate supply (AS).” 12/3/2020 Dr. Raksha Singh
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  Definition  Prof G.J.Stigler defines: “ An equilibrium is a position from which there is no tendency to move, we say net tendency to emphasize the fact that it is not necessarily a state of sudden inertia but may instead represent the cancellation of power forces.”  Professor Mehta: “Equilibrium denotes in economics absence of change in movement.” 12/3/2020 Dr. Raksha Singh
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  Disequilibrium & Equilibrium Economic Disequilibrium  When demand is not the same as supply, we say that there is economic disequilibrium  Economic Equilibrium  It is a state in which economic forces, i.e., market forces, are in perfect balance. It is a state of balance and serenity in economic conditions when no outside forces are causing disruption. 12/3/2020 Dr. Raksha Singh
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  Economic Disequilibrium –I असंतुलन 12/3/2020Dr. Raksha Singh Demand Supply Rs 50 Kg Hypothetical Situation: Kovalam City where total population is 5000. All can buy and sell goods (vegetable ,groceries) at one place only. Amla sellers selling Amla(Goose berry) at Rs 50 per kg, person started coming and all Amla was sold before market time Demand is more than supply- case of Economic Disequilibrium
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  Economic Disequilibrium -II 12/3/2020Dr. Raksha Singh Demand Supply Rs 100 Kg Hypothetical Situation II: Amla sellers decided to sale at Rs 100 per kg, by observing previous day demand but demand of Amla was very less person sixty percent Amla remained unsold. Supply is more than Demand -case of Economic Disequilibrium
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  Economic Equilibrium 12/3/2020 Dr.Raksha Singh Demand Supply Rs 75 Kg Amla seller next day sold at Rs 75 slowly all Amla was sold before market time. We can say this is a situation where Demand equals Supply
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  Schedule & Graph Equilibrium 12/3/2020 Dr. Raksha Singh Price(Rs) Demand (Qty in k.g) Supply (Qty in k.g) 100 20 10 150 18 12 Equilibrium 200 15 15 250 11 19 300 7 24 350 2 30
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  Market clearing बाजार ननकासी Equilibrium price is also called market clearing price because at this price the exact quantity that producers take to market will be bought by consumers, and there will be nothing ‘left over’.  This is efficient because there is neither an excess of supply and wasted output, nor a shortage – the market clears efficiently.  This is a central feature of the price mechanism, and one of its significant benefits. 12/3/2020 Dr. Raksha Singh
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  Reason of Demand DEMAND  At higher price  Demand contracts (decreases) -due to income and substitution effect .These effects discourage demand because they shift to some other commodity which is cheaper  At Lower price  Demand expands ( increases) because the income and substitution effect combine to encourage demand. People start purchasing commodity of lower price and some other buyer also joins 12/3/2020 Dr. Raksha Singh
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  Reason of Supply SUPPLY  At higher price  Supply expands because supplier’s expectation of higher revenue and profits and hence higher prices reduce the opportunity cost of supplying more  At Lower price  Lower prices discourage supply because of the increased opportunity cost of supplying more. 12/3/2020 Dr. Raksha Singh
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  OPPORTUNITY COST OPPORTUNITY COST Theopportunity cost of supply relates to the possible alternative of the factors of production. In the case of a College canteen which supplies Samosa, other eatables or other products become more or less attractive to supply whenever the price of samosa per plate changes.  Changes in demand and supply in response to changes in price are referred to as the signalling and incentive effects of price changes.  Opportunity cost is the value of the next-best alternative when a decision is made; it's what is given up,” 12/3/2020 Dr. Raksha Singh
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  Working Mechanisim  Ifthe market is working effectively, with information passing quickly between buyer and seller (in this case, between students and a college canteen), the market will quickly readjust, and the excess demand and supply will be eliminated.  In the case of excess supply, sellers will be left holding excess stocks, and price will adjust downwards and supply will be reduced. In the case of excess demand, sellers will quickly run down their stocks, which will trigger a rise in price and increased supply. The more efficiently the market works, the quicker it will readjust to create a stable equilibrium price.  Proponents of a free-market system say that economic equilibrium is only possible if there is perfect competition. 12/3/2020 Dr. Raksha Singh
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  Words in Hindi Equilibrium संतुलन  Disequilibrium असंतुलन  Aggregate Demand सकल मांग  Aggregate Supply सकल पूनति  Demand मांग  Supply पूनति  Opportunity Cost अवसर लागत  Schedule सूची/अनुस ूूची  Market Clearing बाजार ननकासी  Incentive प्रोत्साहन 12/3/2020 Dr. Raksha Singh
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  References  Jhingan, M.(1997). Advanced Economic Theory-. Delhi: vrinda publications (P) Ltd.  https://marketbusinessnews.com/financial-glossary/economic-equilibrium/  https://www.google.com/search?q=photo+of+balance+scale&sxsrf  https://www.economicsonline.co.uk/Competitive_markets/Market_equilibrium.html 12/3/2020 Dr. Raksha Singh
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  Thank You 12/3/2020 Dr.Raksha Singh  https://www.youtube.com/watch?v=gXv8KN3JtJs&list=TLPQMDMx MjIwMjDWwvSTEx1ksg&index=4  https://www.youtube.com/watch?v=2cibM0oywiU  https://www.youtube.com/watch?v=4yEmcXkJ8Tk