Market equilibrium
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Transcript of Market equilibrium
MARKET EQUILIBRIUM
Demand Curve vs. Supply Curve
x – quantity of demand
y – price per unit
𝑦=𝑚𝑥+𝑏
x – quantity of demand
y – price per unit
𝑦=𝑀𝑥+𝐵
Model for consumer and producer behavior in relation to price under “normal” free market conditions
MARKET EQUILIBRIUM
Market - the “place” where buyers and sellers exchange money for goods Under free-market conditions, there is a “right price” that will get demand and supply into “balance”.
x quantity of goods
y-price per unit
eP
eQ
1P
1sQ 1dQ
2PWhen P is below , there is shortage of
When P is above , there is a glut (over supply) of
MARKET EQUILIBRIUM
Given the demand and supply curves defined by the system
222
111
cybxa
cybxa
Where x is the quantity of product and y the price per unit of the product. The equilibrium quantity and equilibrium price is the point which is the solution to the system.
Given the demand and supply equations, to find the equilibrium price and quantity, find the solution to the system
MARKET EQUILIBRIUM
Example. Demand equation: Supply equation: x- number of units producedy- price per unit
1. Find the market equilibrium quantity and price.
MARKET EQUILIBRIUM
Solutiona. Identify and set up the system of equations.
𝑥+25 𝑦=425
b. Solve the system . ( Recall the methods to solve systems of equations)
𝑥+25 𝑦=425-
75 𝑦=825
Solve by elimination method
𝑦=11
MARKET EQUILIBRIUM
b. Get the market equilibrium quantity x by substitution
𝑥+25 𝑦=425→ 𝑥+25 (11)=425𝑥=150𝑢𝑛𝑖𝑡𝑠
MARKET EQUILIBRIUM
c. Graph (Two points determine a line)
(425,0)
(0,11)
(0,8)
(-400,0)
(150,11)
𝑥+25 𝑦=425
MARKET EQUILIBRIUM
Solution and answer4.a. Given Supply equation: Demand equation:
a. How many units are available at y = 40php
b. How many units are demanded at y = 28
MARKET EQUILIBRIUM
c. Find the market equilibrium point
𝑦=3 𝑥+20𝑦=−𝑥+44
0=4 𝑥−24→𝑥=6
Solve for y when x = 6
𝑦=−𝑥+44→=−6+44=38
Market equilibrium point (x,y)=( 6, 38)
MARKET EQUILIBRIUM
5. MEP ( 25, 135). At y = 60, no unit will be supplied, but the quantity demanded x is 150 units.
Find the demand and supply equations
Point slope form: Find a point and find the slopeSupply curve: (25,135), (0,60)
𝑚=∆ 𝑦∆ 𝑥
=7525
=3
𝑦=3 𝑥+60
MARKET EQUILIBRIUM
b. Highest price to be paid for the commodity. ( y-intercept of the demand curve)
(0,150) or 150phpc. At y = 90, the quantity of demand is
90=−35𝑥+150
Solve for x: