DEMAND, SUPPLY, EQUILIBRIUM,

ROLE OF GOVERNMENT IN PRICING

DEMAND
Refers to the entire relationship between the quantity
demanded of a product and the price of that product.
2 Important elements:
The willingness or the desire to buy
The ability to buy or the purchasing power of the
consumers.
“absence of one of the elements would mean no demand.”
Demand is the quantity of a good or service that
consumers are willing and able to purchase during a
specified period under a given set of economic
conditions. The time frame may be an hour, a day, a
month or a year.
DEMAND SCHEDULE
- A table showing the different units of the product that
can be sold at different prices
DEMAND CURVE
It is the graphical presentation of the demand schedule.

LAW OF DEMAND:
“when the price of the product is high, the demand
for that product will go down and vice-versa at ceteris
paribus”
DEMAND FUNCTION
Qd = 300 – 5P
POINT OR PRICE (Php) QUANTITY
SITUATION

A 20 200
B 25 175
C 28 160
D 33 135
E 40 100
F 45 75
G 50 50
H 60 0
Q = a + bP
 b = (Q2-Q1)/(P2 – P1)
 b = (160-175)/ (28-25)
 b = -15/3
 b = -5
Q = a + bP
160 = a – 5(28)
160 = a -140
160 + 140 = a
300 = a

Qs = 300 – 5P
Qs = 300 – 5P Point E – Qs
= 300 – 5(40)
Point A – Missing Qs = 300- 200
Qs = 100
Qs = 300 – 5P
= 300 – 5(20)
= 300-100
Qs= 200

Point F – missing Price

Qs = 300 – 5P
75 = 300 – 5P
75 – 300 = -5P
-225 = - 5P
45 = P
 DEMAND SCHEDULE FOR COCONUT
65

60

55

50

45

40

35
PRICE

30

25

20

15

10

0
0 25 50 75 100 125 150 175 200 225

QUANTITY
DEMAND SCHEDULE for Stuffed Toys
Demand Function: Qd = 100 – 2P
POINT OR PRICE (Php) QUANTITY
SITUATION
A 5  90
B 10 80
C 15  
D 20  
E   50
F 30 40
G 35  
H 20
I 45  
J 50 0
SUPPLY
Refers to the quantity of goods and services which the
supplier is willing and able to trade at alternative
prices.
“the willingness and the capacity of the supplier is the
basis of declaring the supply in the market.”
“price is the important factor that determines the
quantity of goods that suppliers are willing to sell.”
SUPPLY FUNCTION
A mathematical equation which illustrates the
relationship of the price and supply.

• SUPPLY SCHEDULE
- A table showing the different units of the product that
can be sold at different prices
 SUPPLY SCHEDULE OF PENCIL
POINT PRICE Qs
A 5 0
B 8 240
C 10 400
D 12 560
E 15 800

THE TABLE ABOVE SHOWS THAT THE SUPPLY _______________ AS

THE PRICE CONTINOUSLY INCREASE.

Point C. Point D.
Qs = -400 + 80P Qs = -400 +80(12)
400 = -400 + 80P = -400 +960
400 + 400 = 80P Qs = 560
800 = 80P Point E
10 = P 800 = -400 +80P
800+400 = 80P
1200 = 80P p=15
Q = a +bP
 b = (Q2 –Q1)/(P2-P1)
 b = (240 – 0)/(8-5)
 b = 240/3
 b = 80
0 = a + 80(5)
0 = a + 400
0 – 400 = a
-400 = a
Qs = -400 + 80P
 SUPPLY SCHEDULE OF PENCIL
16

14

12

10
PRICE

0
0 1 00 2 00 300 400 5 00 600 7 00 800 9 00

QUANTITY
SUPPLY CURVE
It is the graphical presentation of the supply schedule.

LAW OF SUPPLY:
“when the price of the product is high, the producers
are willing to sell more and vice-versa at ceteris paribus
FACTORS THAT AFFECT THE SUPPLY
1. COSTS
 Production costs
 Tax
 Salaries of workers
 Price of raw materials
 Operating expenses
“if production cost is high, supply of the product in the market is low.”
2. SUBSIDY
- assistance provided by the government to small-scale
producers.
“subsidy will increase the supply of product in the market.”
3. WEATHER/CLIMATE
-weather condition affects the production of goods
especially agricultural products.
4. TECHNOLOGY
-the use of modern machineries speed up
production processes and increase output.
5. NUMBER OF SELLERS
- the number of sellers is a determinant of the
abundant supply of a product in the market.
6. PRICE OF RELATED PRODUCTS.
7. EXPECTATION AND SPECULATION
EQUILIBRIUM
Equilibrium – is a market condition where quantity
supplied equals quantity demanded.
Equilibrium price – the price level that both buyers and
sellers agree to have a transaction in the market.
Qd = Qs
Equilibrium quantity – quantity of products that buyers
and sellers agreed to transact at a specified price.
Qd = Qs
substitute the price in the demand and supply function
 Qd = 63 – 3P
Qs = -25 + 5P

POINT PRICE Qd Qs
A 5 48 0
B 8 39 15
C 10 33 25
D 11 30 30
E 13 24 40
F 15 18 50

1. Derive the Functions (Qs and Qd)

2. COMPUTE FOR THE EQUILIBRIUM PRICE
3. COMPUTE FOR THE EQUILIBRIUM QUANTITY
4. COMPLETE THE DEMAND AND SUPPLY SCHEDULE
5. PLOT IN A GRAPH
Qd Qs
 b = (39 -48)/(8-5) b = (15-0) )/(8-5)
 b = -9/3 b = 15/3
 b = -3b = 5
 48 = a – 3(5)15 = a + 5(8)
48 = a – 15 15 = a + 40
48 + 15 = a 15 – 40 = a
63 = a -25 = a
Qd = 63 – 3P Qs = -25 + 5P

 Qd = Qs Qd = Qs
 63 – 3P = -25 + 5P 63 – 3(11) = -25 + 5(11)
 63 + 25 = 5P + 3P 63 – 33 = -25 + 55
 88 = 8P 30 = 30
 11 = P
 DEMAND AND SUPPLY CURVE
16

14

12

10
PRICE

0
0 10 20 30 40 50 60
QUANTITY

Qd Qs