DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH
Name : A.Satyavani Kumari
Designation : Lecturer
Branch : DCCP
Institution : Govt. Poly. for Women, Suryapet
Year/Semester : III Year / V Semester
Subject : Business Economics-I
Subject Code : CCP-502
Topic : Markets
Duration : 50 mts
Sub Topic : Price Determination under perfect
competition
Teaching Aids : PPT & ANIMATIONS

CCP-502.61 1
Objectives

On completion of this period, you would

able to know

 Determination of equilibrium price .

 Determination of Equilibrium volume of

production/output under perfect competition.

CCP-502.61 2
Recap
In the previous classes, we have discussed

 Various form of markets

 Features of Various markets

 How are price and volume determined in a

perfect competition?

CCP-502.61 3
Price Determination under perfect competition

 There will be a single ruling market price.

 Here on wards market price is also termed as

equilibrium price.

CCP-502.61 4
Equilibrium Price

The price at which the total demand (of all buyers)

and total Supply (of all suppliers) are equal.

CCP-502.61 5
Equilibrium Output
The volume of output at which the total demand
(of all Buyers) and total supply (of all sellers) are
equal.

CCP-502.61 6
 Hence, the equilibrium/market price and
output are determined by the intersection of total
demand and total supply.

CCP-502.61 7
 Price & output determination can be
explained with the help of

 Given data and

 Graphical representation

CCP-502.61 8
Table 1

Price Demand of good- Supply of

(Rs.) X (Kgs.) good-X (Kgs.)
20 50 10
25 40 20
30 30 30
35 20 40
40 20 50

CCP-502.61 9
Observations from Table 1

(a) When the price is high

 The supply will be more than the demand

 Initiates the need for reduction of market

price

CCP-502.61 10
(b) When the price is less

 The supply will be less than the demand.

 Initiates the need for raising price.

CCP-502.61 11
 (C) When the price is Rs.30.00 the quantity
demanded and quantity supplied are equal and
the pressure on price is neutral.

Therefore, price Rs.30.00 is the market price

or equilibrium price.

CCP-502.61 12
output

CCP-502.61 13
 Graph Explanation
On ‘X’ axis quantity demanded/ supplied is
shown.
 On ‘Y’ axis Price is shown.
 DD is demand curve, slopes downward.
 SS is supply curve, slopes upward.

CCP-502.61 14
 Observations from Fig.1
 When the price rises demand falls.
 When the price rises supply increases.

CCP-502.61 15
 The demand curve DD and the supply curve SS
intersects at the point E.
 Point E is equilibrium point .
 If we draw a parallel outline from E to ‘Y’ axis,
then the price is P.
 Hence ‘OP’ is equilibrium price where demand
and supply are equal.

CCP-502.61 16
 If we draw an outline from ‘E’ to ‘X’ axis it joins
the ‘X’ axis at the point ‘M’.
 Hence ‘OM’ is the equilibrium output.

CCP-502.61 17
 Conclusions from Fig.1
(A)
 If price rises from ‘OP’ to ‘OP1’, Supply is in
excess of demand shown as surplus.
 So, the price fall to ‘OP’ level.

CCP-502.61 18
(B)
 If the price falls from ‘OP’ to ‘OP2’, demand is in
excess of supply.
 Hence for equalising quantity demanded and
quantity supplied price needs to be raised.
 So, the price will rise to ‘OP’ level.

CCP-502.61 19
 Hence the price at which the demand and
supply curves intersect , is the equilibrium price.

 This equilibrium price prolongs until the demand

and supply positions are unchanged.

CCP-502.61 20