Market Equilibrium Class 12 Notes | EduRev

 Page 1


 
 
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