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Eco Chapter 9 - 9BR

The document discusses market equilibrium and price determination. It defines equilibrium price as the price where demand and supply are equal, so there are no shortages or surpluses. The equilibrium price can be found by comparing demand and supply schedules. The document provides an example schedule and shows how to identify the equilibrium price and quantity graphically. It also discusses how markets move from a state of disequilibrium towards equilibrium when prices are above or below the equilibrium level.

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Black arab Galadima
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22 views12 pages

Eco Chapter 9 - 9BR

The document discusses market equilibrium and price determination. It defines equilibrium price as the price where demand and supply are equal, so there are no shortages or surpluses. The equilibrium price can be found by comparing demand and supply schedules. The document provides an example schedule and shows how to identify the equilibrium price and quantity graphically. It also discusses how markets move from a state of disequilibrium towards equilibrium when prices are above or below the equilibrium level.

Uploaded by

Black arab Galadima
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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CHAPTER 9

PRICE DETERMINATION

Economics IGCSE – 9BR


Learning objectives

By the end of this chapter you will be able to:

Demand and supply schedules and curves to establish equilibrium


Use prices and sales in a market

Demand and supply schedules and curves to identify disequilibrium


Use prices and excess demand and supply in a market
Introducing the topic

M a r ket t r a d e r s o f f r e s h f i s h a r e s o m et i m e s l e f t w i t h
u n s ol d f i s h a t t h e e n d o f t h e d ay w h i ch t h ey h ave to
t h r o w a w a y. T h e n ex t d a y t h e y a r e l i k e l y t o l o w e r
t h e p r i c e t h ey ch a r g e. O n o t h e r o c c a s i o n s, t h ey m ay
f i n d t h a t t h e y a r e s e l l i n g o u t o f f i s h v e r y q u i c k l y.

I n t h i s c i r c u m s t a n c e, t h ey m ay d e c i d e to r a i s e t h e i r
pr ice. In practice, it can be diff icult for producers
to k n ow w h a t i s t h e a p p r o p r i a t e p r i c e to ch a r g e a n d
there may have to be adjustments to eliminate
shor tages and surpluses.
How are prices determined?
C o n s u m e r s wa n t l ow p r i c e s , w h i l s t s e l l e r s wa n t h i g h p r i c e s . S o h ow i s
the pr ice of a product deter mined?

I n s o m e c a s e s , t h e r e i s d i r e c t b a r g a i n i n g b e t we e n b u y e r s a n d s e l l e r s .
B u y e r s o f t e n h a g g l e w i t h m a r ke t t r a d e r s , s e e k i n g t o d r i v e t h e p r i c e
d ow n , a n d t h e t r a d e r s a i m t o ke e p t h e p r i c e r e l a t i v e l y h i g h .

In other cases, the bargaining is more indirect. Fir ms estimate and


t h e n c h a r g e w h a t t h ey t h i n k i s t h e e q u i l i b r i u m p r i c e .

• I f t h ey c a n ’ t s e l l a l l o f t h e i r o u t p u t a t t h i s p r i c e , t h ey w i l l l ow e r i t .

• I f, o n t h e o t h e r h a n d , t h ey f i n d t h a t c o n s u m e r s wa n t t o b u y m o r e
t h a n w h a t t h ey a r e o f f e r i n g f o r s a l e a t t h i s p r i c e , t h ey w i l l r a i s e t h e
pr ice.
Market equilibrium

So what do you think the


equilibrium price means?
Equilibrium price

Equilibr i um pr i ce is also sometimes refer r ed to as


the market clear i ng pr i ce.

• It is the pr i ce where demand and suppl y are


equal , and so there are no shor t ages or
surpluses of the product.

• The equilibr i um pr i ce of a product can be found


by compar i ng the demand and suppl y schedules
of that product, and seeing where demand and
suppl y are equal.
What is the
Price Quantity Quantity
equilibrium price? (S) demanded supplied
50 2200 6000
Table 9.1: The daily 45 2500 5000
demand for and supply of 40 3000 4300
train tickets from Station 35 3800 3800
X to Station Y
30 5000 3600
25 7000 3500
Draw a Demand
and Supply
diagram for the
schedule above
Show the equilibr ium
pr ice at P and the
S
equilibr ium quantity at
Q.

P r ices will stay at P


and sales at Q until
demand and suppl y D
conditions change.
 Ma r ket f o r c e s m ove p r i c e towa r d s t h e e q u i l i b r i u m .

Moving from
 I f a f i r m s ets t h e p r i c e a b ove t h e e q u i l i b r i u m
market l eve l , i t wi l l n o t s e l l a l l o f t h e p r o d u cts i t o f f e r s
f o r s a l e - t h e r e wi l l b e a s u r p l u s ( exc e s s s u p p l y ) .

disequilibrium
 To e n s u r e t h e f i r m s e l l s a l l o f t h e p r o d u cts i t
to market wa n t s to, i t wi l l l owe r p r i c e u n t i l t h e m a r ket
c l e a r s, wi t h t h e q u a n t i t y d e m a n d e d e q u a l l i n g t h e
equilibrium quantity supplied.
Show the market S

initiall y being in a
state of
disequilibr ium, with
suppl y exceeding
demand
D
Show the market S

initiall y being in a
state of
disequilibr ium, with
suppl y exceeding
demand
D

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