DEMAND AND SUPPLY IN

RELATIONSHIP TO THE PRICE

OF BASIC COMMODITIES
Market Equilibrium
Is a state of balance when demand is equal to
supply

Determination of Market Equilibrium

Demand function for Good X is: Qd=60-p/2 and the
supply function for Good X is: Qs=5+5P
Demand Schedule of Price Good X Supply Schedule of Good
X
₱1 60 5
2 59 15
4 58 25
6 57 35
8 56 45
10 55 55
12 54 65
14 53 75
16 52 85
 ELASTICITIES OF DEMAND
AND SUPPLY
Degree of Elasticity
1. Elastic a change in determinant
• Elasticity refers to the will lead to a proportionately
degree to which greater change in demand or supply.
individuals, consumers or 2. Inelastic a change in a
determinant will lead to a
producers change their proportionately lesser change in
demand or the amount demand or supply.
supplied in response to 3. Unitary Elastic a change in a
determinant will lead to a
price or income changes. proportionately equal change in
demand or supply.
ELASTICITY OF DEMAND
Price Elasticity of Demand
measure the responsive of
demand to a change in the price
of the good
1. Arc Elasticity the value of elasticity is
computed by choosing two points on the
demand curve and comparing the percentage
changes in the quantity and the price on those
two points.
Ep={(Q2-Q1)/(Q2+Q1/2)} ÷ {(P2-P1)/(P2+P1/2)
o Where:
Q2= new quantity demanded
Q1= original quantity demanded
P2= new price of the good
P1= original price of the good
2. Point Elasticity measures the degree of elasticity on a
single point on the demand curve.

Ep={(Q2-Q1)/(Q1)} ÷ {(P2-P1)/(P2+P1/2)
 ELASTICITY OF DEMAND

Income Elasticity of Demand this measures how the

quantity demanded changes as consumer income change.
Cross Price Elasticity of Demand this measure how
quantity demanded changes as the price of a related good
change.