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DEMAND, SUPPLY

AND MARKET
EQUILIBRIUM
Supply INPUT Demand
MARKET
HOUSEHOLD FIRM
OUTPUT
Demand MARKET Supply
DEMAND
It is the amount of goods and
services that the consumers/
buyers are willing and able to
purchase.
Quantity Demand (Qd)
- It is the amount of goods and
services that the consumers/ buyers
are willing and able to purchase at a
particular time, place, and price.
Law of demand
As the price increases quantity
demanded decreases, and as the
price decreases quantity demanded
increases, if other factors remain
constant (ceteris paribus).
P Qd
P Qd
Justification
1. Income Effect
2. Substitution Effect
Factors affecting demand:
Price
Non-price
1. Price (P)

P Qd
Inversely
proportional (-)
2. Income (I)
a.Normal Goods (+)
-Goods in which demand
increase when income
increase.
2. Income (I)
b. Inferior Goods(-)
-Goods in which demand
falls when income
increase.
2. Income (I)

I Qd Qd NG IG
3. Price Expectation (Pe)

Pe Qd Directly
Proportional (+)
4. No. of Consumers(N)

N Qd
Directly
Proportional (+)
5. Taste and Preference(T)

T Qd
Directly
Proportional (+)
6. Price of related product

a.Substitute Product
-goods that can be use in
place of others. (+)
6. Pr

a.Substitute Product (+)

Pr Qd
6. Price of related product
b. Complementary Goods
-goods that can't be used
without the others. (-)
6. Pr
b.Complementary Product (-)

Pr Qd
7. Range of the available
goods (R)

R Qd
Inversely
Proportional (-)
Quality of product
Season
Promotion and Advertisement
Religion
Fashion/Fad
Customs and tradition
Demand Function
It is the representation between
demand and all of its determinants
expressed in a mathematical
language using functional form.
Generalized Demand Function


Ordinary Demand Equation

Ceteris paribus
Ordinary Demand Equation
Dependent Independent
Variable Variable

Intercept Slope
Demand Equation


If P=20, then


If P=30, then

8
If P=40, then


If P=50, then


Demand Schedule
It is a listing of the different
quantities of goods and services
that buyers will purchase given
various alternative price.
20 12
20
30 12
8
30
40 8
4
50
40 0
4
50 0
Demand Curve

It is a plotted demand
schedule.
P
50
40
30
20
10
Demand
Q
0 4 8 12 16 20 24
Movement along Demand Curve
Price
A
DECREASE B
IN PRICE, Demand
INCREASE IN
QUANTITY
Quantity
Movement along Demand Curve
Price
B
INCREASE IN A
PRICE, Demand
DECREASE IN
QUANTITY
Quantity
Change in Demand
P
Increase in
demand

D1 D2
Q
Change in Demand
P
Decrease in
demand

D2 D1
Q
P Qd1 Qd2
5 18 36
10 16 32
15 14 28
20 12 24
25 10 20
30 8 16
35 6 12
40 4 8
P
25
20
15
10
5
D1 D2
Q
0 5 10 15 20 25 30
Market demand curve
It is the total demand obtained by
taking the horizontal summation
of all the demand curve of the
customers in the market.
P CA CB CC Total
15 5 10 2 17
14 8 13 4 25
13 11 16 6 33
12 14 19 8 41
11 17 22 10 49
10 20 25 12 57
P

A B C Total
Q
Qd=10-2P
1. Solve the Qd with the
price of 15,30,45,60,75.
2. Make a Demand Schedule.
3. Illustrate a Demand Curve.
Qd=100-10P
1. Solve the Qd with the
price of 1,2,3,4,5 (in million).
2. Make a Demand Schedule.
3. Illustrate a Demand Curve.
1. Stock market crash lower
people’s wealth.
2. Oil price hike.
3.Population grow by 15%
from 2013-2016.
SUPPLY
It is the amount of goods and
services that the producers
are willing and able to sell.
Quantity Supplied (Qs)
-It is the amount of goods and
services that the producers are
willing and able to sell at a
particular time, place, and price.
Law of supply
As the price increases, quantity
supplied also increases, and as
the price decreases, quantity
supplied also decreases, ceteris
paribus.
Factors affecting supply:
Price
Non-price
1. Price (P)

P Qs
Directly
proportional (+)
2. Cost of production (C)

C Qs
Inversely
proportional (-)
3. Price of related product

a.Substitute Product (-)

Pr Qs
3. Price of related
product
b.Complementary Product(+)

Pr Qs
4. Technology (Te)

T Qs
Directly
proportional (+)
5. Price Expectation (Pe)

Pe Qs
Inversely
Proportional (-)
6. Number of Seller(Se)

Se Qs Directly
Proportional (+)
7. Government Taxes(Tx)

Tx Qs Inversely
Proportional (-)
8. Government Subsidies (SB)

Sb Qs
Directly
Proportional (+)
9. Availability of Inputs (A)

A Qs Directly
Proportional (+)
10. Weather/Season

W Qs Directly (+)
Proportional
Supply Function
It is the representation between
supply and all of its determinants
expressed in a mathematical
language using functional form.
Supply Function


Generalized Supply Function


Ordinary Supply Equation

Ceteris paribus
Supply Function
Dependent Independent
Variable Variable

Intercept Slope
Supply Equation


If P=20, then


If P=30, then

8
If P=40, then


If P=50, then


Supply Schedule
It is a listing of the different
quantities of goods and
services that producers will sell
given various alternative price.
20 2
20
30 2
8
30
40 8
14
50
40 20
14
50 20
Supply Curve

It is a plotted supply
schedule.
P
50
40 Supply
30
20
10

Q
0 2 4 6 8 10 12 14 16 18 20
Movement along Supply Curve
Price
B Supply

INCREASE IN
A
PRICE,
INCREASE IN
QUANTITY
Quantity
Movement along Supply Curve
Price
A Supply

DECREASE IN
B
PRICE,
DECREASE IN
QUANTITY
Quantity
Change in Supply
P
Increase in
supply
S1 S2
Q
Change in Supply
P
Decrease in
supply
S2 S1
Q
P Qs1 Qs2
10 4 2
12 8 4
14 12 6
16 16 8
18 20 10
20 24 12
22 28 14
24 32 16
P
32
28
24 S2 S1
20
16
12
8
4
0
2 4 6 8 1012 1416 18 202224 26 2832
Q
Market supply curve

It is the total summation


of all individual supply of
the sellers in the market.
P CA CB CC Total
1 11 5 1 17
2 15 9 4 28
3 19 14 7 40
4 23 18 10 51
5 27 22 13 62
6 31 27 16 74
P
C B A Total

Q
Qs=100+10P
1. Solve the Qs with the price
of 10,20,25,30,40,45,50.
2. Make a Supply Schedule.
3. Illustrate a Supply Curve.
Qs=1000+2000P
1. Solve the Qs with the price
of 0,1,2,3,4,5,6,7(in million)
2. Make a Supply Schedule.
3. Illustrate a Supply Curve.
MARKET EQUILIBRIUM
It is the condition when
quantity demanded is
equal to quantity supplied.
Equilibrium quantity
The amount of a good
bought and sold in market
at a prevailing equilibrium
price.
Price(P)
Supply(S)

Demand(D)
Equilibrium Quantity(Q)
Price of X() Quantity Quantity Excess Supply(+)/
supplied for demanded for Excess Demand(-)
commodity X ( commodity X ( (Surplus/
Shortage
10 1 9 -8
10
20 1
2 9
8 -8
-6
20
30 2
3 8
7 -6
-4
30
40 3
4 7
6 -4
-2
50
40 5
4 5
6 0
-2
60
50 6
5 4
5 2
0
70 7 3 4
60 6 4 2
80 8 2 6
70 7 3 4
P
90
80 S
70
60
50
40
30
20
10 D D2
Q
0 1 2 3 4 5 6 7 8 9 10
Demand: Qd=20-0.4P
Supply: Qs= -10+0.6P
Equilibrium Pricre
Qd=Qs
20-0.4P=-10+0.6P
20+10=0.6P+0.4P
30=P
Equilibrium Quantity
Qd=20-0.4P
Qd=20-0.4(30)
Qd=8
Equilibrium Quantity
Qs=-10+0.6P
Qs=10+0.6(30)
Qs=8
Price of X() Quantity Quantity Excess Supply(+)/
supplied for demanded for Excess Demand(-)
commodity X ( commodity X ( (Surplus/
Shortage
20
20 2
2 12
12 -10
-10
30 8 8 0
30
40 8
14 8
4 0
10
40
50 14
20 4
0 10
20
50 20 0 20
P S (Qs=-10+0.6P)
50
40
30
20
10
D (Qd=20-0.4P)
Q
0 4 8 12 16 20 24
1.Qd=4000-500P
Qs= -2000+1000P
2. Qd=500-50P
Qs=50+25P
1. Ep= QS =QD
4000-500P=-2000+1000P
(6000=1500P)
4=P
1.Qd=4000-500(4)=2000
Qs= -2000+1000(4)=2000
2. Qd=500-50P
Qs=50+25P
1.Qd=4000-500(4)=2000
Qs= -2000+1000(4)=2000
2. Qd=500-50(7.33)=133.5
Qs=-50+25(7.33)=133.5
2. Eq=500-50P=-50+25P
550=75p
7.33=p