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Unit 3: Supply and Market Equilibrium
           Dilfraz Singh, Lovely Professional University



                       Unit 3: Supply and Market Equilibrium                                    Notes


             CONTENTS

             Objectives
             Introduction
             3.1   Meaning of Supply
             3.2   Law of Supply
             3.3   Shift and Movement of Supply Curve
             3.4  Market Equilibrium
                 3.4.1  Complex Changes in Demand and Supply
                 3.4.2  Price Ceiling and Price Floors
             3.5  Summary
             3.6   Keywords
             3.7  Self Assessment
             3.8  Review Questions
             3.9  Further Readings


          Objectives
          After studying this unit, you will be able to:

               Defi ne ‘supply’
               State the Law of Supply
               Discuss the movements and shifts in supply curve
               Explain how market equilibrium is reached
               Describe the concept of price ceiling and price fl oor
          Introduction


          It is true that economy runs on demand but that demand has to be fulfilled with corresponding

          supply as well. Say, if there is a huge demand for mobile phones in an economy, there has to be

          corresponding supply to fulfill that demand.
          If adequate supply is not there, then the demand would not be fulfi lled.

                 Example: You are willing to buy a tennis ball, but the shopkeepers tell you that there
          are no balls available in the market due to short supply. We all do face such situations, many a
          times.
          The imbalance between demand and supply creates a lot of problems in an economy. So, there
          should be an attempt to balance demand and supply and reach a point, where the demand equals
          supply. Such a state of balance is known as equilibrium.

          3.1 Meaning of Supply


          Supply is the specific quantity of output that the producers are willing and able to make available
          to consumers at a particular price over a given period of time.



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