1. APPLICATION OF DEMAND AND SUPPLY 2. MARKET EQUILIBRIUM 3. SHIFT IN DEMAND AND SUPPLY +ABSTRACT OF TOPICS TO BE COVERED: 1. PRICE DETERMINATION UNDER PERFECT COMPETITION 2. EQULIBRIUM PRICE (PERFECT COMPETITION) WITH THE HELP OF MARKET EQUILIBRIUM, MARKET DEMAND, MARKET SUPPLY AND THE EQUILIBRIUM BETWEEN DEMAND AND SUPPLY AND EFFECTS OF GOVERNMENT INTERVENTION ON MARKET PRICE. 3. EFFECTS OF SHIFT IN DEMAND AND SUPPLY ON EQUILIBRIUM PRICE AND QUANTITY A.RIGHTWARD AND LEFTWARD SHIFT IN DEMAND B.RIGHTWARD AND LEFTWARD SHIFT IN SUPPLY C.SIMULTANEOUS RIGHTWARD AND LEFTWARD SHIFT IN BOTH DEMAND AND SUPPLY WITH THE HELP OF GRAPHS FOR EACH CASE. 4. CAUSES OF SHIFT IN DEMAND CURVES 5. CAUSES OF SHIFT IN SUPPLY CURVES

1. Applications of Demand and Supply
Market Equilibrium
Shift in Demand and Supply

2. PRICE DETERMINATION UNDER
PERFECT COMPETITION
• Market Equilibrium:
Qty.Demanded = Qty.Supplied, at a particular price.
Situation when there is Zero Excess Demand and Supply.
Equilibrium Price:
Price of a commodity at which its Qty Demanded is equal
to its Qty supplied in the market.

3. PRICE DETERMINATION UNDER
PERFECT COMPETITION
• Under perfect competition, Price of a
commodity is determined by the general
interaction of market forces of demand and
supply in the industry.
• Not determined by a single firm but by
industry.
• Market Supply = Market Demand

5. Excess of Demand
• It is a situation when Market Price is lower than the
Equilibrium Price.
• Demand > Supply
• Buyers will not be able to buy what they want to buy.
• Market Price is pushed up, which leads to two
consequences:
– Supply increases as producers are willing to supply more
at a higher price.
– Demand decreases as buyers will buy less at a higher
price.
– This tendency of increase in supply and decrease in
demand will continue until equilibrium is established ie.
D=S

6. Excess of Supply
• It is a situation when Market Price is higher than the
Equilibrium Price.
• Demand < Supply
• Sellers will not be able to sell what they want to sell.
• Market Price is pushed down, which leads to two
consequences:
– Supply decreases as producers are willing to supply less at
a lower price.
– Demand increases as buyers will buy more at a lower
price.
– This tendency of decrease in supply and increase in
demand will continue until equilibrium is established ie.
D=S

7. Non-Viable Industry
• No Demand for a Product as the Price is too
high.
• Consumers are not willing to buy even a
single product.
• The industry is not economically viable to
produce such products, eg: Commercial
aircrafts.

8. Graphical Representation
Here,
Supply curve lies above Demand curve.
They do not intersect at any positive quantity.

9. Effects of shift in Demand and Supply
on Equilibrium Price.
• It means the increase or decrease in Demand
or Supply.
• It occurs due to a change in factors other than
the price of a commodity and not the price.
(a)Shift in Demand only
(b)Shift in Supply only
(c)Simultaneous shift in Demand and Supply.

10. Shift in Demand Only
(A) Rightward Shift in Demand Curve:
-Demand for a commodity increases while
supply is Constant.
-Equilibrium Price and Quantity Increases.
(B) Leftward Shift in Demand Curve:
-Demand for a commodity decreases while
Supply is constant.
-Equilibrium Price and Quantity Decreases

12. Shift in Supply Only
(A)Rightward Shift in Supply Curve.
-Supply for a commodity increases while Demand
remains Constant.
-Decrease in Equilibrium Price but increase In
Quantity
(B)Leftward Shift in Supply Curve.
-Supply for a commodity decreases while Demand
remains Constant.
-Increase in Equilibrium Price but decrease in
Quantity.

14. Simultaneous shifts in Demand and
Supply
(A)Simultaneous Rightward Shift:
(I) When increase in supply is equal to
increase in demand:
-Equilibrium price
remains the same.
-Equilibrium
Quantity Increases

15. (II) When Increase in Supply is less than increase
in Demand:
-Both equilibrium
price and quantity
will increase.

16. (III) When increase in Supply is more than
increase in Demand:
-Equilibrium price will fall
- Equilibrium Quantity
will increase

17. (B) Simultaneous Leftward Shift:
(I)When decrease in supply equals decrease in
demand:
-Equilibrium price
is unaffected.
-Equilibrium
quantity decreases.

18. • (II) When Decrease in Supply is more than
Decrease in Demand:
– Equilibrium Price will
increase
– Equilibrium Quantity
falls

19. • (III)When Decrease in Supply is less than
Decrease in Demand:
– Equilibrium Price
and Quantity will fall.

20. Causes of Shifts in Demand and
Supply
• Shifts in Market Demand and
Supply are caused by factors
other than price .
• Remember , these changes are
NOT caused because of a
change in price!

21. Causes of Shift in Demand
• (1)Change In Price of Related Goods in
consumption:
– Related goods include Substitute and
Complimentary goods.
– Substitute Goods:
• If the price of one good rises then the demand for its
substitute also rises. Eg. Tea and Coffee.
• Causing a rightward shift in the demand curve.
– Complimentary Goods:
• If the price of one good rises the demand for its
compliment will fall. Eg: Tea and Sugar
• Causing a leftward shift in the demand curve.

22. • (2)Change in Income:
– This shift occurs when there is a change in the
aggregate income of an economy.
– Demand for a Normal good(Direct relation):
• When the income rises, the demand also
rises.(Rightward shift)
• When the income falls, the demand also
falls.(Leftward shift)
• Eg: Wheat
– Demand for an Inferior good(Indirect relation):
• When the income rises, the demand falls.(Leftward
shift)
• When the income falls, the demand rises.(Rightward
shift)
• Eg: Ragi

23. • (3)Change in Taste:
–Favourable Change:
• Demand rises(Rightward shift)
• The Price and Quantity purchased will
increase.
–Unfavourable Change:
• Demand Falls(Leftward shift)
• The Price and Quantity purchased will
decrease.

24. • (4)Change in number of consumers
in the market:
–Increase in number of consumers:
• Market Demand rises (Rightward Shift)
• Price and quantity purchased rises.
–Decrease in number of consumers:
• Market Demand falls (Leftward Shift)
• Price and quantity purchased falls.

25. Causes of Shift in Supply
• (1)Change in Price of Factor Inputs:
– Increase in Price of factor inputs leads to an
increase in cost of production.
– Leftward shift in supply curve.
– Price of product increases and quantity
exchanged falls.

26. • (2)Technological Progress:
– Technological progress helps in reducing the cost
of production.
– This reduces price of the product.
– Supply increases. (Rightward Shift)
• (3)Change in Excise duties:
– An increase in Excise Duties in production
increases the cost of production.
– Hence this shifts the supply curve to the left.
– This increases price of the product and decreases
the quantity supplied.

27. • (4)Increase in price of Substitute Good in
Production:
– The supply curve of the given product shifts to the
left.
– The producer prefers to produce the substitute
good as this gives him more profit.
– Price of the given product increases and quantity
exchange will decrease.

28. • (5)Number of firms in the Market:
– An increase in the number of firms leads to an
increase in the competition.
– Shifts the market supply curve to the right.
– This results in fall in the price of the product and
increase in the quantity exchanged.
• (6)Other Factors:
– Change in Weather Conditions
– Change in Goals of Producers
– Future Expectations of price changes.

29. Government Intervention
• Direct Intervention:
– Control Price and Support Price
• Indirect Intervention:
– Taxes
– Subsidies

30. • Indirect Intervention:
– Taxes
– Subsidies