PRICE OUTPUT DETERMINATION UNDER PERFECT COMPETITION

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Pioneer arts & commerce college :

Pioneer arts & commerce college

PRICE OUTPUT DETERMINATION UNDER PERFECT COMPETITION:

PRICE OUTPUT DETERMINATION UNDER PERFECT COMPETITION PRESENTED BY : KRUNAL SUTHAR ROLL NO.:08

PERFECT COMPETITION.:

PERFECT COMPETITION. IN PERFECT COMPETITION, INDUSTRY IS A PRICE-MAKER WHILE FIRMS ARE PRICE- TAKER. According to Prof.Bilas, “ The seller is price taker not a price maker.” Therefore in perfect competition price is determined by the industry, at which the demand for the output of each firm is perfectly elastic.

JAVSON'S AND HIS SUPPORTER'S VIEW :

JAVSON'S AND HIS SUPPORTER'S VIEW According to them price is always equal to the marginal utility of a commodity under perfect competition.

Dr. Alfred Marshall’s view:

Dr. Alfred Marshall’s view According to Dr.Alfred Marshall of a commodity is determined by the interaction of its demand and supply both. Both are needed to determine the price of a commodity as both the blades of a scissors are needed to cloth. The relative effect of demand and supply on the price determination will be as follows:

PowerPoint Presentation:

On the demand side, a lower price leads to extension of demand and a higher price leads to contraction of it. On the supply side a lower price leads to contraction of supply and a higher price leads to contraction of it. Which of the two demand & supply is more important in the determination of price?

Equilibrium between Demand & Supply:

Equilibrium between Demand & Supply Demand varies inversely with price & supply varies directly with price. We shall prepare an imaginary table showing demand and supply for a commodity at different price.

Price determination in market:

Price determination in market Price Demand supply 5 100 500 4 200 400 3 300 300 2 400 200 1 500 100

PowerPoint Presentation:

In the last slide table are shown various quantities of a commodity demanded and supplied at various hypothetical prices. It may be noticed that at the price of Rs.3 per unit, the demand exactly equals supply. At all other prices demand & supply are not equal. We can say that when the price is Rs.3,demand & supply are equlibrium. Therefore, it is an equilibrium price.

PowerPoint Presentation:

In the figure at the price AB=Rs.3,quantity of a commodity demanded & supplied is 300. AB is an equilibrium price. At any other price demand is either more of less than supply. Thus, at price of Rs.5 demand is 100 but supply is 500. An excess supply will tend to lower the price. The price will have tendency to come down. Similarly ,if the price is lower than Rs.3 there will be excess demand, and this will have a tendency to raise price. Thus, the change in price brings about equilibrium between demand & supply and when an equilibrium is established, the price is an equilibrium price.

Effect of change in demand and supply on price:

Effect of change in demand and supply on price There are shift in demand & supply curve due to factor such as change in fashions, incomes etc. Or due to change in technical condition of production. In such cases the demand curve and the supply curve shift upward of downward.

PowerPoint Presentation:

Let us analyses effects of change in demand conditions which shift the demand curve upward. If there is no change in supply condition, the price will rise. A new equilibrium will be established as shown in figure.

Effect of change in demand on price while supply held constant:

Effect of change in demand on price while supply held constant

PowerPoint Presentation:

In fig. the old equilibrium price is AB, but due to change in demand conditions new demand curve is D1 and new equilibrium price is CE. Increase in demand leads to rise in price. Similarly, if the demand curve remains unchanged and the supply curve shift to the right the as shown in the figure in next slide;

Effect of change in supply on price while demand held constant.:

Effect of change in supply on price while demand held constant .

PowerPoint Presentation:

In the fig. the new supply curve is S1 & the new equilibrium price is CE. The new price is less than the old equilibrium price AB. Increase in supply leads to a fall in price . From the above analysis it follows that increase in demand tends to raise the price and increase in supply tends to lower remain constant. If demand & supply increase in equal proportion the effect is neutralized, i.e. the price will remain the same. This can be shown in diagrammatical.

PowerPoint Presentation:

In fig. the new equilibrium price CE is equal to the old price AB. Although demand has increase, so has supply & hence there is no effect on price .

THANKS TO ALL OF YOU HEAR IT TO ME:

THANKS TO ALL OF YOU HEAR IT TO ME

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