Market Equilibrium refers to the meeting of

supply and demand.

Market - It is where buyers and sellers
meet.
Equilibrium- is generally understood as a
state of balance.
 Generally pertains to a balance that exists
when quantity demanded quantity supplied.
 Is general agreement of the buyer and seller at
particular price and at a particular quantity.
 at equilibrium point there are always two
sides of the story.
◦ The side of the buyer
◦ The side of the seller.
 Is the price agreed by the seller to offer its
good or service for sale and for the buyer to
pay for it.
 It is the price at which quantity demanded of a
good is exactly equal to the quantity supplied.
 Generated by the intersection of the demand
and curves.
 Generated by the intersection of the demand
and supply curve
DEMAND CURVE SUPPLY CURVE
 depicts the quantity  Depicts the quantity
that consumers are that producers are
willing to buy at prepared to sell at
particular prices. particular price.
Two conditions may happen:
1. A surplus
2. A shortage
 is a condition in the market where the quantity
supplied is more the quantity demanded.
 the tendency is for the sellers to lower market
prices in order for the goods to be easily
disposed from the market.
 Downward pressure to price when there is
surplus in order to restore equilibrium in the
market.
 is a condition in the market in which quantity
demanded is higher than supplied.
 It exists below the equilibrium point.
 Upward pressure to prices to restore
equilibrium in the market.
 It happens when quantity demanded is greater
than quantity supplied.
 The government may intervene by imposing
price controls.
 Price Controls- is the specification by the
government of minimum and maximum prices
for goods and services.
 1. Floor Price
2. Price ceiling
 Is the legal maximum price imposed by the
government.
 This is undertaken if a surplus in the economy
persists.
 It is a form of assistance to producers by
government for them to survive in their
business.
 It is a legal maximum price imposed by
government.
 It is utilized by the government if there is a
persistent storage of goods in the economy.
 it is generally imposed by government to
protect the consumers from abusive producers
or sellers who take advantage of the situation.
The equation system:
 Supply equation: QS= c + dP
 Demand equation: QD= a – bP
 Equilibrium condition: QS = QD
 3 equations and unknowns (QD , QS , P)
 Exogenous variable: Y
 Parameters/coefficients: a, b, c, d
Price QD QS Surplus/
shortgae
6
5
4
3
2
1
 look for PE and QE?
 Given:
 Qs = 33+ 10P
 QD = 68 - 6P
 solving for price equilibrium:
Equate Quantity demand and Quantity supplied:
68- 6P=33+10P
________________
10P+6P=68-33
16P=35
16 16
PE= Php. 2.19
Use quantity demand: substitution
Given: QD = 68-6P and PE = 2.19
68 – 6(2.19)
68 – 13.14
QD = 54.9 units
To check use the quantity supply: substitution
Given: QS = 33 +10P and PE = 2.19
33+10(2.19)
33+2.19
QE = 54.9 units
Given: QD = 68-6P
QS = 33+10P
Price= 6
Computation:
QD = 68 – 6P
68 – 6(6)
QD = 32
 QS = 33+10P
33+10(6)
QS = 93

Q S > QD
93>32

Surplus = 61 units