# Market Equilibrium Class 12 Notes | EduRev

## Class 12 : Market Equilibrium Class 12 Notes | EduRev

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CHAPTER 5
MARKET EQUILIBRIUM

? Market Equilibrium: It is defined as the state of rest which is determined by the
rational objectives of consumers and producers. The rational objective of consumers
is to maximise their satisfaction, given their money income, while that of the
producers is to maximise their profit, given their cost structure.
? Equilibrium Price: The price at which the market supply and market demand
intersect each other gives equilibrium price and the corresponding quantity of
output is called equilibrium output.

Symbolically Market Equilibrium is denoted as:
Q
S
(P
e
) = Q
D
(P
e
)
Q
S
= Market supply at equilibrium price
Q
D
= Market Demand at equilibrium price
P
e
= Equilibrium price
? Excess Demand – It is defined as a situation where the market demand exceeds
the market supply at a particular price.
? Excess Supply – It is defined as a situation where the market demand falls short of
the market supply at a particular price.
Page 2

CHAPTER 5
MARKET EQUILIBRIUM

? Market Equilibrium: It is defined as the state of rest which is determined by the
rational objectives of consumers and producers. The rational objective of consumers
is to maximise their satisfaction, given their money income, while that of the
producers is to maximise their profit, given their cost structure.
? Equilibrium Price: The price at which the market supply and market demand
intersect each other gives equilibrium price and the corresponding quantity of
output is called equilibrium output.

Symbolically Market Equilibrium is denoted as:
Q
S
(P
e
) = Q
D
(P
e
)
Q
S
= Market supply at equilibrium price
Q
D
= Market Demand at equilibrium price
P
e
= Equilibrium price
? Excess Demand – It is defined as a situation where the market demand exceeds
the market supply at a particular price.
? Excess Supply – It is defined as a situation where the market demand falls short of
the market supply at a particular price.

Excess Demand = q ?d – q ?s = 6 units
Excess Supply = q ?s – q ?d = 4 units
Equilibrium Price = Rs 8
Equilibrium Output = 4 units
? Market Equilibrium under Fixed Number of Firms
Shift in Demand and Supply
The change in the equilibrium price and quantity with respect to shift in demand
and supply is fragmented under three situations:
Changes in market demand only
Change in market supply only
Simultaneous changes in both – market demand and market supply.
1) Changes in market demand
The change in market demand can be:
a) Increase in demand
b) Decrease in demand
Effects of Change in Demand with Supply Unchanged on Equilibrium Price and Output
Change in Shift in Equilibrium Equilibrium
Figure
Page 3

CHAPTER 5
MARKET EQUILIBRIUM

? Market Equilibrium: It is defined as the state of rest which is determined by the
rational objectives of consumers and producers. The rational objective of consumers
is to maximise their satisfaction, given their money income, while that of the
producers is to maximise their profit, given their cost structure.
? Equilibrium Price: The price at which the market supply and market demand
intersect each other gives equilibrium price and the corresponding quantity of
output is called equilibrium output.

Symbolically Market Equilibrium is denoted as:
Q
S
(P
e
) = Q
D
(P
e
)
Q
S
= Market supply at equilibrium price
Q
D
= Market Demand at equilibrium price
P
e
= Equilibrium price
? Excess Demand – It is defined as a situation where the market demand exceeds
the market supply at a particular price.
? Excess Supply – It is defined as a situation where the market demand falls short of
the market supply at a particular price.

Excess Demand = q ?d – q ?s = 6 units
Excess Supply = q ?s – q ?d = 4 units
Equilibrium Price = Rs 8
Equilibrium Output = 4 units
? Market Equilibrium under Fixed Number of Firms
Shift in Demand and Supply
The change in the equilibrium price and quantity with respect to shift in demand
and supply is fragmented under three situations:
Changes in market demand only
Change in market supply only
Simultaneous changes in both – market demand and market supply.
1) Changes in market demand
The change in market demand can be:
a) Increase in demand
b) Decrease in demand
Effects of Change in Demand with Supply Unchanged on Equilibrium Price and Output
Change in Shift in Equilibrium Equilibrium
Figure

Demand Demand
Curve
Output Price

a) Increase
in Demand

Rightwards

Rise

Rise

b) Decrease
in Demand

Leftwards

Fall

Fall

2) Change in Market Supply
The change in market supply can be:
a) Increase in Market Supply
b) Decrease in Market Supply
Effects of Change in Supply with Demand Unchanged on Equilibrium Price and Output
Change in
Demand
Shift in
Demand
Curve
Equilibrium
Output
Equilibrium
Price
Figure
Page 4

CHAPTER 5
MARKET EQUILIBRIUM

? Market Equilibrium: It is defined as the state of rest which is determined by the
rational objectives of consumers and producers. The rational objective of consumers
is to maximise their satisfaction, given their money income, while that of the
producers is to maximise their profit, given their cost structure.
? Equilibrium Price: The price at which the market supply and market demand
intersect each other gives equilibrium price and the corresponding quantity of
output is called equilibrium output.

Symbolically Market Equilibrium is denoted as:
Q
S
(P
e
) = Q
D
(P
e
)
Q
S
= Market supply at equilibrium price
Q
D
= Market Demand at equilibrium price
P
e
= Equilibrium price
? Excess Demand – It is defined as a situation where the market demand exceeds
the market supply at a particular price.
? Excess Supply – It is defined as a situation where the market demand falls short of
the market supply at a particular price.

Excess Demand = q ?d – q ?s = 6 units
Excess Supply = q ?s – q ?d = 4 units
Equilibrium Price = Rs 8
Equilibrium Output = 4 units
? Market Equilibrium under Fixed Number of Firms
Shift in Demand and Supply
The change in the equilibrium price and quantity with respect to shift in demand
and supply is fragmented under three situations:
Changes in market demand only
Change in market supply only
Simultaneous changes in both – market demand and market supply.
1) Changes in market demand
The change in market demand can be:
a) Increase in demand
b) Decrease in demand
Effects of Change in Demand with Supply Unchanged on Equilibrium Price and Output
Change in Shift in Equilibrium Equilibrium
Figure

Demand Demand
Curve
Output Price

a) Increase
in Demand

Rightwards

Rise

Rise

b) Decrease
in Demand

Leftwards

Fall

Fall

2) Change in Market Supply
The change in market supply can be:
a) Increase in Market Supply
b) Decrease in Market Supply
Effects of Change in Supply with Demand Unchanged on Equilibrium Price and Output
Change in
Demand
Shift in
Demand
Curve
Equilibrium
Output
Equilibrium
Price
Figure

a) Increase
in Supply
Rightwards Fall Rise

b)Decrease
in Supply
Leftwards Rise Fall

3) Simultaneous change in market demand and market supply.
The simultaneous change in market demand and market supply affects the
equilibrium price and output depends on the magnitude of the change in demand
and supply.
Effects of Simultaneous Change in Demand and Supply on Equilibrium Price and Output
Cases
Equilibrium
Price
Equilibrium
Quantity
Figure
Both demand and supply changes simultaneously in the same direction
Page 5

CHAPTER 5
MARKET EQUILIBRIUM

? Market Equilibrium: It is defined as the state of rest which is determined by the
rational objectives of consumers and producers. The rational objective of consumers
is to maximise their satisfaction, given their money income, while that of the
producers is to maximise their profit, given their cost structure.
? Equilibrium Price: The price at which the market supply and market demand
intersect each other gives equilibrium price and the corresponding quantity of
output is called equilibrium output.

Symbolically Market Equilibrium is denoted as:
Q
S
(P
e
) = Q
D
(P
e
)
Q
S
= Market supply at equilibrium price
Q
D
= Market Demand at equilibrium price
P
e
= Equilibrium price
? Excess Demand – It is defined as a situation where the market demand exceeds
the market supply at a particular price.
? Excess Supply – It is defined as a situation where the market demand falls short of
the market supply at a particular price.

Excess Demand = q ?d – q ?s = 6 units
Excess Supply = q ?s – q ?d = 4 units
Equilibrium Price = Rs 8
Equilibrium Output = 4 units
? Market Equilibrium under Fixed Number of Firms
Shift in Demand and Supply
The change in the equilibrium price and quantity with respect to shift in demand
and supply is fragmented under three situations:
Changes in market demand only
Change in market supply only
Simultaneous changes in both – market demand and market supply.
1) Changes in market demand
The change in market demand can be:
a) Increase in demand
b) Decrease in demand
Effects of Change in Demand with Supply Unchanged on Equilibrium Price and Output
Change in Shift in Equilibrium Equilibrium
Figure

Demand Demand
Curve
Output Price

a) Increase
in Demand

Rightwards

Rise

Rise

b) Decrease
in Demand

Leftwards

Fall

Fall

2) Change in Market Supply
The change in market supply can be:
a) Increase in Market Supply
b) Decrease in Market Supply
Effects of Change in Supply with Demand Unchanged on Equilibrium Price and Output
Change in
Demand
Shift in
Demand
Curve
Equilibrium
Output
Equilibrium
Price
Figure

a) Increase
in Supply
Rightwards Fall Rise

b)Decrease
in Supply
Leftwards Rise Fall

3) Simultaneous change in market demand and market supply.
The simultaneous change in market demand and market supply affects the
equilibrium price and output depends on the magnitude of the change in demand
and supply.
Effects of Simultaneous Change in Demand and Supply on Equilibrium Price and Output
Cases
Equilibrium
Price
Equilibrium
Quantity
Figure
Both demand and supply changes simultaneously in the same direction

a) Increase in
Demand =
Increase in Supply
Unchanged Increases

b) Increase in
Demand >
Increase in Supply
Increases Increases

c) Increase in
Demand <
Increase in Supply
Falls Increases

d) Decrease in
Demand =
Decrease in Supply
Unchanged Falls

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