I NEED TO FIND MY

EQUILIBRIUM…
Demand + Supply = Market
Targets…
 Review the concept of demand & supply
 Understanding the market forces or how
supply and demand together set the price of
a good and the quantity sold
 Applying the concept of market forces to
everyday events
Back to the basics
 Demand = buyer’s  Supply = seller’s
behavior behavior
Demand & Supply
 Demand  Supply
 Change in the Price –  Change in the Price –
change in QUANTITY change in QUANTITY
DEMANDED; no new SUPPLIED; no new
demand supply
 Change in ITPgENc –  Change in ITPETNG–
change in demand; change in supply; there
there is a new demand is a new supply at each
at each price level price level
Demand & Supply
 Demand  Supply
 Change in demand---  Change in supply
 Increase in demand ---  Increase in supply---
demand curve shifts to supply curve shifts to
the right the right
 Decrease in demand---  Decrease in supply---
demand curve shifts to supply curve shifts to
the left the left
 D’ MARKET
Is an institution or mechanism that brings
together buyers and sellers of a particular good
or service.
The market is a process of competing bids and
offers.
Examples of market
 Retail stores
 Gas station
 Mall / Supermarket
 E-commerce site – E-bay, Amazon etc
 Philippine Stock Exchange
 Philippine Dealing System P/$
 Labor market – placement office
 Etc, etc
Markets…
 Link potential buyers with potential sellers
 May be local or international
 Maybe personal involving face-to-face
contact between buyers and sellers
 Or impersonal which means that buyers and
sellers do not see or know each other
Why are roses expensive during
Valentine’s Day?
Why are vegetables and fish
expensive after a typhoon?
Why are fruits cheap during
summer?
The answer my friend is…
DEMAND & SUPPLY!

WHY DOES PRICE GO UP OR DOWN?

THE EQUILIBRIUM…
PRICE AND QUANTITY
Demand & Supply For Shoes
EQUILIBRIUM
PRICE = DEMAND
PRICE SUPPLY
MARKET
CLEARING
0 PRICE 20 0
500 15 5
750 10 10
1000 5 EQUILIBRIUM 15
QUANTITY
1250 0 20
@ equilibrium price, D = S
S

At P750
Buyers demand for
Shoes coincides with
750 The sellers production
Of shoes.
Market clears!

10
What if… the price is higher than
the equilibrium price?

If price is higher,
Supply > Demand
Surplus occurs
Because producers
Will produce more
While buyers will
Demand less.
What if… the price is lower than
the equilibrium price?
If price is lower,
Supply < Demand
Shortage occurs
Because producers
Will produce less
While buyers will
Demand more
Market will adjust …
But this SURPLUS will
Be eliminated because
Sellers will lower their
Prices down to the
Equilibrium price then
Market clears again!

But this SHORTAGE will

Be eliminated because
Buyers will bid up the
Prices up to the
Equilibrium price then
Market clears again!
Demand & Supply For Shoes
BUYERS WILL
TRY TO BID UP
PRICE DEMAND
THE PRICE SUPPLY

0 20 0
500 15 5
750 10 10
1000 5 SELLERS 15
WILL SELL AT
1250 0 A DISCOUNT 20
IF THERE IS AN IMBALANCE
IN THE MARKET WHAT WILL
ADJUST?

PRICE
THE PRICE WILL ADJUST TO BRING THE
MARKET INTO BALANCE OR EQUILIBRIUM
 STATIC ANALYSIS
What happens to equilibrium price
and quantity when…
1. Increase in Demand
2. Decrease in Demand
3. Increase in Supply
4. Decrease in Supply
What if both curves change?
 There are several possible outcomes
depending on the relative size of the demand
and supply shifts.
 Find the initial equilibrium price and quantity
using the initial demand and supply curves
 Find the new equilibrium price and quantity
from the new demand and supply curves
LET’S DO SOME MARKET
BALANCE!!