NATIONAL INCOME AND EQUILIBRIUM

1. NATIONAL INCOMEANDEQUILIBRIUM SUB: ECONOMICS GROUP MEMBERS: HOORAIN & NOOR

2. NATIONAL INCOME The total value of all income in a nation (wages and profits and interest and rents and pension payments) during a given period (usually 1 yr)

3. CONCEPTS OF NATIONAL INCOME

4. CONCEPTS OF NATIONAL INCOME The various concepts of national income are given below: Gross national product: “ The total market value of all final goods and services produced in a year.” G.N.P = CONSUMER GOODS + CAPITAL GOODS + DEPRECIATION + INDIRECT TAXES Net National Product (N.N.P): “The market value of final goods and services after deducting the depreciation charges is called net national product. N.N.P = G.N.P – DEPRECIATION Personal Income (P. I ): The some of all incomes received by an individaual or an household is known as personal income. PERSONAL INCOME (P.I)= NATIONAL INCOME – SOCIAL SECURITY CONTRIBUTION - COOPERATE INCOME TAX – UNDISTRIBUTED PROFITS Disposable Income: After the payment of all the taxes the income which is left is known as disposable income.

5. THE EXPENDITURE APPROACH

6. THE EXPENDITURE APPROACH The expenditure approach is basically an output accounting method. It focuses on finding the total output of a nation by finding the total amount of money spent. The basic formula for domestic output combines all the different areas in which money is spent within the region, and then combining them to find the total output. GDP = C + I + G + (X - M) Where: C = household consumption expenditures / personal consumption expendituresI = gross private domestic investment G= Govt investment X=Exports M= Imports

9. EQUILIBRIUM Economic equilibrium is a state of the world where economic forces are balanced and in the absence of external influences the (equilibrium) values of economic variables will not change. It is the point at which quantity demanded and quantity supplied are equal

10. GENERAL EQUILIBRIUM General equilibrium: analyses the way in which the choices of economic agents are co-ordinated acrossall product and factor markets. Partial equilibrium: neglects the way in which changes in one market affect other (product/factor) market.

11. MARKET EQUILIBRIUM Market equilibrium, for example, refers to a condition where a market price is established through competition such that the amount of goods or services sought by buyers is equal to the amount of goods or services produced by sellers. This price is often called the equilibrium price or market clearing price and will tend not to change unless demand or supply change.

13. PROPERTIES OF EQUILIBRIUM

14. PROPERTIES OF EQUILIBRIUM When the price is above the equilibrium point there is a surplus of supply; where the price is below the equilibrium point there is a shortage in supply. In most simple microeconomic stories of supply and demand in a market a static equilibrium is observed in a market; however, economic equilibrium can exist in non-market relationships and can be dynamic. an increase in supply will disrupt the equilibrium, leading to lower prices. Eventually, a new equilibrium will be attained in most markets. Then, there will be no change in price or the amount of output bought and sold; until there is an exogenous shift in supply or demand (such as changes in technology or tastes). That is, there are no endogenous forces leading to the price or the quantity.

16. CHANGES IN SUPPLY, DEMAND AND MARKET EQUILIBRIUM

17. CHANGES IN SUPPLY, DEMAND & MARKET EQUILIBRIUM The price adjustment mechanism: If the quantity supplied, Qs, is greater than the quantity demanded, Qd, at a price P0, then a surplus exists at P0. Because of this surplus, consumers will bid down the market price. As the market price decreases, the quantity demanded will increase and the quantity supplied will decrease until the quantity demanded equals the quantity supplied, at which point the surplus is eliminated and a market equilibrium is established.         An increase in supply S with constant demand D will decrease the equilibrium price P* and increase the equilibrium quantity Q*. Similarly, a decrease in supply S with constant demand D will increase the equilibrium price P* and decrease the equilibrium quantity Q*.             Alternatively, an increase in demand D with constant supply S will increase both the equilibrium price P* and equilibrium quantity Q*. A decrease in demand D with constant supply S will decrease both the equilibrium price P* and equilibrium quantity Q*.

19. MARKET EQUILIBRIUM IN THE LONG AND SHORT RUN

20. MARKET EQUILIBRIUM IN THE LONG AND SHORT RUN • SHORT RUN EQUILIBRIUM: Short-run equilibrium of the firm under monopolistic competition. The firm maximizes its profits and produces a quantity where the firm's marginal revenue (MR) is equal to its marginal cost (MC). The firm is able to collect a price based on the average revenue (AR) curve. The difference between the firms average revenue and average cost gives it a profit. • LONG RUN EQUILIBRIUM: Long-run equilibrium of the firm under monopolistic competition. The firm still produces where marginal cost and marginal revenue are equal; however, the demand curve (and AR) has shifted as other firms entered the market and increased competition. The firm no longer sells its goods above average cost and can no longer claim an economic profit

21. EQUILIBRIUM IN SHORT RUN

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