Concept of Market Equilibrium is defined as a state of the market when demand for a commodity is equals to its supply corresponding to a particular price. Thus, in a state of equilibrium market demand is equals to market supply of the commodity. There is neither excess demand nor excess supply. Price in the market
Market refers to a mechanism or an arrangement that facilitates contact between the buyer and seller for the sale and purchase of goods and services. Perfect Competition is a form of the market where there is a large number of buyer and seller of a commodity. Homogeneous product is sold and its price is determined
Quantity Supplied refers to a specific amount offered for sale at the specific price of the commodity. Change in quantity supplied is caused by the change in price of the commodity. It is the movement along a supply curve. It is shown on the same supply curve.
Producer’s Equilibrium refers to the level of output of a community which gives maximum profit to the producer. Normal profits are the part of TC. They are defined as the minimum return that the producer expects from his capital invested in the business. If this minimum return is not available, he will withdraw his capital
It refers to the expenditure incurred by a producer on factor input as well as on new factor input for a given output of a commodity. Cost is always measured as opportunity cost because cost of producing a given amount of output is to be measured in terms of the sacrifices made in the producing that
Short run is a period of time when we can change only variable factors not fixed factors. Short run production function is a technological relationship between physical inputs where one factor is fixed and other is a variable factor. In this type of production function, output can be increased by increasing the units of L
Price elasticity of demand is defined as the measurement of percentage change in quantity demanded in response to a given percentage change in own price of the commodity. It is denoted by Ed (Elasticity of demand) or Ep (Price elasticity of demand).
Consumer’s equilibrium means a situation where consumer’s satisfaction is maximum after spending his given income on the given prices of two commodities. IC is convex at the point of equilibrium which means MRSxy is declining. The equilibrium is obtained at point E where MRSxy slope of IC) is equals to Px/Py (slope of budget line).