Equilibrium

Equilibrium means perfect balance .This topic is useful for economics and commerce students

1. 12/3/2020 Dr. Raksha Singh
EQUILIBRIUM
DrRakshaSingh
Principal
Shri Shankaracharya
Mahavidyalaya

2. SYLLABUS
12/3/2020 Dr. Raksha Singh

3. Equilibrium
संतुलन
“Equilibrium is derived from theLatin word
aequilibriumwhich means equal balance
This word is imported from physics: Where it
means a state of even balance in which opposing
forcesor tendencies neutralize each other
12/3/2020 Dr. Raksha Singh

4. Equilibrium
“Equilibrium is a state of balance in an economy, and
can be applied in a number of contexts. In micro-
economics, market equilibrium price is the price that
equates demand and supply.”
“In macro-economics, national income is in
equilibrium when aggregate demand (AD) equals
aggregate supply (AS).”
12/3/2020 Dr. Raksha Singh

5. Definition
Prof G.J. Stigler defines: “ An equilibrium is a
position from which there is no tendency to move,
we say net tendency to emphasize the fact that it
is not necessarily a state of sudden inertia but may
instead represent the cancellation of power
forces.”
Professor Mehta: “Equilibrium denotes in
economics absence of change in movement.”
12/3/2020 Dr. Raksha Singh

6. Disequilibrium & Equilibrium
Economic Disequilibrium
When demand is not the same as supply, we
say that there is economic disequilibrium
Economic Equilibrium
It is a state in which economic forces, i.e., market
forces, are in perfect balance. It is a state of balance
and serenity in economic conditions when no outside
forces are causing disruption.
12/3/2020 Dr. Raksha Singh

7. Economic Disequilibrium –I
असंतुलन
12/3/2020 Dr. Raksha Singh
Demand
Supply
Rs 50 Kg
Hypothetical Situation:
Kovalam City where total population is 5000. All can buy and sell goods
(vegetable ,groceries) at one place only.
Amla sellers selling Amla(Goose berry) at Rs 50 per kg, person started
coming and all Amla was sold before market time
Demand is more than supply-case ofEconomic Disequilibrium

8. Economic Disequilibrium -II
12/3/2020 Dr. Raksha Singh
Demand
Supply
Rs 100 Kg
Hypothetical Situation II:
Amla sellers decided to sale at Rs 100 per kg, by observing previous day
demand but demand of Amla was very less person sixty percent Amla
remained unsold.
Supply is more than Demand -case of Economic Disequilibrium

9. Economic Equilibrium
12/3/2020 Dr. Raksha Singh
Demand Supply
Rs 75 Kg
Amlaseller next day sold at Rs75 slowly all Amlawas
sold before market time. We can say this is a situation
whereDemand equals Supply

10. Schedule & Graph
Equilibrium
12/3/2020 Dr. Raksha Singh
Price(Rs)
Demand
(Qtyin k.g)
Supply
(Qtyin k.g)
100 20 10
150 18 12
Equilibrium200 15 15
250 11 19
300 7 24
350 2 30

11. Market clearing
बाजार ननकासी
Equilibrium price is also calledmarket clearing
pricebecause at this price the exact quantity that
producers take to market will be bought by consumers,
and there will be nothing ‘left over’.
This is efficient because there is neither an excess of
supply and wasted output, nor a shortage –the market
clears efficiently.
This is a central feature of the price mechanism, and one
of its significant benefits.
12/3/2020 Dr. Raksha Singh

12. Reason of Demand
DEMAND
At higher price
Demand contracts (decreases) -due to income and substitution
effect.These effects discourage demand because they shift to some
other commodity which is cheaper
At Lower price
Demand expands( increases) because the income and
substitution effect combine to encourage demand. People start
purchasing commodity of lower price and some other buyer also
joins
12/3/2020 Dr. Raksha Singh

13. Reason of Supply
SUPPLY
At higher price
Supply expands because supplier’s expectation of higher
revenue and profits and hence higher prices reduce the
opportunity cost of supplying more
At Lower price
Lower prices discourage supply because of the increased
opportunity cost of supplying more.
12/3/2020 Dr. Raksha Singh

14. OPPORTUNITY COST
OPPORTUNITY COST
The opportunity cost of supply relates to the possible alternative of the
factors of production.
In the case of a College canteen which supplies Samosa, other eatables
or other products become more or less attractive to supply
whenever the price of samosa per plate changes.
Changes in demand and supply in response to changes in price are
referred to as thesignallingandincentiveeffects of price changes.
Opportunity cost is the value of the next-best alternative when a
decision is made; it's what is given up,”
12/3/2020 Dr. Raksha Singh

15. Working Mechanisim
If the market is working effectively, with information passing quickly
between buyer and seller (in this case, between students and a college
canteen), the market will quickly readjust, and the excess demand and
supply will be eliminated.
In the case of excess supply, sellers will be left holding excess stocks,
and price will adjust downwards and supply will be reduced. In the
case of excess demand, sellers will quickly run down their stocks,
which will trigger a rise in price and increased supply. The more
efficiently the market works, the quicker it will readjust to create a
stable equilibrium price.
Proponents of a free-market system say that economic equilibrium is
only possible if there is perfect competition.
12/3/2020 Dr. Raksha Singh

16. Words in Hindi
Equilibrium संतुलन
Disequilibrium असंतुलन
Aggregate Demand सकल मांग
Aggregate Supply सकल पूनति
Demand मांग
Supply पूनति
Opportunity Cost अवसर लागत
Schedule सूची/अनुस ूूची
Market Clearing बाजार ननकासी
Incentive प्रोत्साहन
12/3/2020 Dr. Raksha Singh

17. References
Jhingan, M. (1997). Advanced Economic Theory-.Delhi: vrinda
publications (P) Ltd.
 https://marketbusinessnews.com/financial-glossary/economic-equilibrium/
 https://www.google.com/search?q=photo+of+balance+scale&sxsrf
 https://www.economicsonline.co.uk/Competitive_markets/Market_equilibrium.html
12/3/2020 Dr. Raksha Singh

18. Thank You
12/3/2020 Dr. Raksha Singh
https://www.youtube.com/watch?v=gXv8KN3JtJs&list=TLPQMDMx
MjIwMjDWwvSTEx1ksg&index=4
https://www.youtube.com/watch?v=2cibM0oywiU
https://www.youtube.com/watch?v=4yEmcXkJ8Tk