Market Demand, Market Supply and Market Equilibrium

Market Demand
The demand for a product and who wants to buy it is referred to as market demand. This is
determined by how eager customers are to pay a specific price for a product or service. Price
rises in tandem with market demand. When demand falls, the price will fall as well.
What is demand? Demand is an economic principle referring to a consumer’s desire to
purchase goods and services and willingness to pay a price for a specific good or service (The
Investopedia Team, 2021). Demand tells us what people want. It also tells us what they can buy
at a certain time and place because it involves buying and at what price people can buy it or are
willing to buy it.
Factors of Affecting Demand
According to Econport n.d., “Even though the focus in economics is on the relationship
between the price of a product and how much consumers are willing and able to buy, it is
important to examine all of the factors that affect the demand for a good or service.”
These factors include:
1. Price of the Product The price of a product and the amount of product that consumers are
willing and able to buy have an inverse relationship. Consumers prefer to buy more of a low-
cost goods and less of a high-cost product.
2. Changes in Income People’s earnings have an impact on how much or how little they buy. A
factory worker, for example, makes ₱15,000.00 per month, while a businessman earns
₱40,000.00. This means that a factory worker has less money and can only buy a fraction of
what a businessman can. When a factory worker’s pay rises, he can afford to buy more. The
demand for goods and services changes in response to changes in income. As a result, as
income rises, consumers buy more, and as income falls, consumers buy less.
3. Changes in the Number of Buyers More people equals more demand for products and
services, while fewer people equals less demand. For example, during the school year, a pizza
restaurant near a university will have increased demand and consequently higher sales during
class days. However during the summer, when fewer students are in school, the demand for
pizza reduces as the number of customers in the vicinity decreases.
4. Tastes and Preferences When individuals enjoy or prefer a product or service, demand rises.
Advertisement and fashion have a big influence on these interests and inclinations. There are
numerous factors that might alter one's tastes and inclinations, causing people to purchase. For
instance, if a celebrity supports a new product it might influence the people to like and want it,
thereby increasing the demand for a product.
5. Price of Related Goods People tend to buy substitute products, when the price of a certain
good increases. Ayungon rice 128 and Masipag, for example, are substitute products for some
people. If the price of Masipag rises, Ayungon rice 128 may become more appealing. When two
items are replacements, the price of one good and the demand for the other good have a
positive connection.
The Law of Demand
When a product's price falls, consumers buy more of it, and when it rises, they buy less.
According to the law of demand, as the price of a commodity rises, demand falls, and when the
price of a commodity falls, demand rises.

Why is the Demand Curve Downward Sloping?

The Demand Curve
A demand curve is a schedule of the willingness and capacity of a consumer to buy a
commodity at alternative prices at a given point in time other things held constant. The demand
curve focuses on the relationship between the quantity demand and the price of the commodity
at a given point in time other things held constant. The demand curve shows a negative
relationship between the price of the goods and the quantity demand. Specifically, as the price
of a commodity decreases, the quantity demand increases and when the price increases, the
quantity demand decreases.
Quantity Demanded
Is the amount (number of units) of a product that a household would buy in a given time
period if it could buy all it wanted at the current market price.
A demand schedule is a table showing how much of a given product a household would be
willing to buy at different prices. Demand curves are usually derived from demand schedules.

The demand curve shows that when the price per call increases the demand for
calls decreases.

Changes in Demand Curve

A. Demand shifts to the right
 An increase in demand shifts the demand curve to the right, and raises price and
output.

B. Demand shifts to the left

a. A decrease in demand shifts the demand curve to the left and reduces price and
output.
Market Supply
When economists discuss supply, they are referring to the number of goods or services
that a producer is willing to provide at a price. The price is the amount received by the producer
for selling one unit of a good or service. Almost often, a price increase leads to an increase in
the quantity given, while a decrease in price will decrease the quantity supplied.
What is supply?
Supply is the number of quantities of the product and services that is offered for sale at
all possible prices in the market in a given period of time and place. Supply implies the ability
and willingness of sellers to sell.
Factors of Affecting Supply
According to Gabas (2020), the factors affecting supplies are:
1. Technology
This refers to the method of production or how something is produced. Having
modern technology means being able to produce more. Manufacturing is the reason that
you’re able to use many of the products as well as enjoy the services that you do today.
However, the introduction of technology into the manufacturing industry has helped take
it to an entirely new level. Not only has it made it more interesting in terms of innovation,
but it has also enabled quicker and more efficient ways in operating. Better technology
means more supply produced and less cost of producing theses goods.
2. Cost of production.
This refers to the things a producer has to spend on to keep making goods and
services. These are: raw materials, labor and factory overhead. An increase in
 production cost makes it harder for the producer because he/she has to pay more to
keep producing. This is why when the cost of producing goes up, the supply of goods
most likely goes down.
When cost of production cost goes up the supply goes down and when
production cost goes down the supply goes up.
3. Number of sellers
More sellers or more factories in a market means an increase in supply and
fewer sellers in a market decreases supply.

4. Taxes and subsidies

Certain taxes increase the cost of production. Higher taxes discourage
production because it reduces the earnings of businessmen, thus government extends
tax exemptions to some new and necessary industries to stimulate their growth.
Similarly, tax incentives are granted to foreign investors in order to increase foreign
investment in the Philippines, thus resulting more goods.
Subsidies offered by the government reduces the cost of production, which
induces businessmen to produce more.

The Law of Supply

The law of supply states that when the price goes up the supply goes up when the price
goes down the supply goes down in which quantity offered for sale will vary directly with price.

Why is the Supply Curve Upward Sloping?

The Supply Curve
 The supply curve is a graph that depicts a direct or positive relationship between the
price of a commodity and the amount of output that a seller is willing to supply at a given point in
time, all other factors being equal. The supply curve depicts a positive or direct link between the
commodity's price and the quantity available in the market.
Quantity Supplied
It denotes the number of units of a product that a company is willing and able to sell at a
specific price during a specific time period. A supply schedule is a table that shows how much of
a product will be supplied at various prices by different firms.
 As the price of beans per kilo rises, so does the supply, and as the price of beans per
kilo falls, so does the supply.

Changes in the Supply Curve

A. Supply shifts to the right
Increased supply causes the supply curve to shift to the right, lowering prices and
increasing output.

B. Supply shifts to the left

When supply decreases, the supply curve moves to the left, raising price but
lowering output.
Market Equilibrium
Economists use the term equilibrium to describe the balance between supply and
demand in the marketplace. Under ideal market conditions, price tends to settle within a stable
range when output satisfies customer demand for that good or service.
The term “market equilibrium” refers to a state of equilibrium in which the amount
demanded equals the quantity supplied. The general agreement of the buyer and seller in the
exchange of goods and services at a specific quantity is known as market equilibrium. At the
point of equilibrium, there are always two sides to the narrative, the buyer's and the seller’s. On
the other hand, when buyers and sellers transact in a market they agree on the price of the
commodity and the amount to be sold and bought, this agreed price is called equilibrium price.
For instance, given the price of ₱ 30.00 the buyer is willing to purchase 150 units. On the
other hand, the seller is willing to sell the quantity of 150 units at a price of ₱ 30.00. This simple
illustration simply shows that the buyer and seller agree at a particular price and quantity that is
₱ 30.00 and 150 units. This is the main concept of equilibrium, that there is a balance between
price and quantity of goods bought by consumers and sold by sellers in the market.

The intersection of the market supply and demand curves is where a market’s
equilibrium price and quantity are found. The equilibrium price in the example above is ₱30.00,
with a quantity demanded and supplied of 150 units.
What happens when there is market disequilibrium?
When there is market disequilibrium, two conditions may happen: there a surplus or a
either a shortage as shown in Graph 9.
Surplus
is a market condition in which the quantity supplied exceeds the amount required; when
there is surplus, sellers are more likely to cut market prices in order to quickly dispose of
products and services.
Shortage
is a market condition in which the quantity requested exceeds the quantity available at a
given price. A shortage occurs when the quantity required is greater than the quantity available.
Market Equilibrium: A Mathematical Approach
In prior discussions, we used a graphical presentation to present market equilibrium. In
this section, we will attempt to use a mathematical equation to determine the market’s price and
quantity equilibrium.
How to find the equilibrium price and quantity?