BASIC MICROECONOMICS REPORT

Market Equilibrium
Members
John Venedick Bravo
Janna Mikaela L. Hermogenes
Nicolle L. Mandigma
BSBA 1A
 01 Market Equilibrium

02 Surplus or Excess Supply

03 Shortage or Excess Demand

Equilibrium: Where Supply and

CONTENTS 04
Demand Intersect
05 Equilibrium and Economic Efficiency

06 Finding the Equilibrium

Changes in Supply and

07
Demand
 - At most prices, planned
demand does not equal
planned supply, this is a
state of disequilibrium
- It occurs where 03
01 because there is either a
buyers and sellers
shortage or surplus and
meet to
exchange money firms have an incentive to
for goods. change the price.
Supply Market Price Mechanism Disequilibrium
- Refers to how supply
It is the willingness and ability of and demand interact to
sellers to produce and offer to sell set the market price and
02 04
amount of goods sold.
different quantities of a good at
different prices during a specific
time period.

PART. 01
 Market Equilibrium
- Is achieved when the demand for something is equal to the
available supply.

When the market is in equilibrium, there is no tendency

for prices to change.
We say the market-clearing price has been achieved.
Market Equilibrium

Can be shown using

supply and demand
diagrams

In this diagram, the equilibrium price is P1.

The equilibrium quantity is Q1
 Surplus or Excess Supply
- It is a situation in which the quantity of a good or service
supplied is more than the quantity demanded and the price is
above the equilibrium level determined by supply and demand.
- There is a surplus of unsold goods in a market.

PART.02
 Surplus or Excess Supply

According to Economic According to Standard

Theory Economic Theory
If prices are sufficiently flexible, A minimum wage may result in
then excess supply should not excess supply.
percist in the long run
 The curved labeled “supply” shows a positive
relationship between the price and quantity supplied.

The curved labeled “demand” shows a negative or

inverse relationship between price and the quantity
demanded..

The curved labeled “supply” shows a positive

relationship between the price and quantity supplied.

If price was at P2, this is above the equilibrium of P1.

At the price of P2, then supply (Q2 would be greater than
demand (Q1) and therefore there isntoo much supply.
There is a surplus. (Q2-Q1)
 Shortage or Excess Demand
 - The quantity demanded is greater than the quantity supplied at
the given price.  

Market Demand
- It is the demand for a commodity in the market. It is the sum total of
individuals demand by all buyers of the commodity in the market

PART.03
 Shortage or Excess Demand

Occurs at a price less than the equilibrium

price. Since the prices would decrease, it
would act as a bait for buyers to flock in
markets which would lead to competition
among these buyers.

A rise in price of a good or service almost

always decreases the quantity demanded of
that good or service
 ▪︎Increase in demand
▪︎Decrease in supply Three main causes of
Shortage
▪︎Government intervention

A shortage can also be shown on a

graph; its size is the quantity gap
between the demand curve and supply
curve at a price below the equilibrium
price.

At P2, the demand is Q2, but supply is

only Q1, leading to a shortage (Q2-Q1)
Maximum prices Price ceilings  Price floors 
▪ This is a government ▪ Prevent a price from rising ▪ Prevent a price from
price control, where the above a certain level. falling below a certain
government says the level.
price cannot rise above > When a price ceiling is set
“Max Price” below the equilibrium price, > When a price floor is set
quantity demanded will above the equilibrium
> this leads to demand exceed quantity supplied, and price, quantity supplied
being greater than excess demand or shortages will exceed quantity
supply. will result. demanded, and excess
supply or surpluses will
result.
 Equilibrium: Where Supply and Demand Intersect

Equilibrium
◇ When two lines on a diagram cross
◇ The point where the supply curve (S) and the demand curve
(D) cross
◇ It is designated by point.
◇ “ BALANCE”

PART.04
 Equilibrium Quantity Equilibrium Price

◇ where the amount of the product

◇ Is the only price where the
consumers want to buy (quantity
plans of consumers and the
demanded) is equal to the amount
plans of producers agree
producers want to sell (quantity
supplied). 
Interaction of demand and supply in the market for gasoline . 
 Rationing Function of Prices
• The price in a competitive market serves two very important functions, 
rationing and allocating.

Rationing function
- relates to the buyers of the good.

Price is used to ration the limited quantity of a good among the various buyers
who would like to purchase it. 

Allocating or Signaling
- relates to producers and resource owners
 Equilibrium and Economic Efficiency

- a situation which supply and demand are matched and prices

stable.

-if a market is at its equilibrium price and quantity then it has no

reason to move away from that point, because it’s balancing
quantity supplied and the quantity demanded.

-if market is not at equilibrium then economic pressures arise to

move the market toward the equilibrium price and equilibrium
quantity. PART.05
Efficiency

- is when all goods and factors of

production in an economy are
distributef or allicated to their
Add a subhading
most valuable uses and waste is
Enter a specific text description here, and
illiminated or minimized.
the language should be concise.
Finding the Equilibrium

PART.06
 Part 1 : A Pay raise for Postal Workers
1. Draw a demand and supply model to
illustrate what the market for the U.S.
Postal Service looks like before this
scenario starts. The demand curve D
and the supply curve S show the
original relationships.
2. Will a pay raise for postal workers affect
supply or demand?
Labor compensation is a cost of
production. A change in production costs
cause a change in supply for the Postal
Service.
Is the effect on supply positive or
3.
negative?
Higher labor compensation leads to a
lower quantity supplied of postal services
at every given price, causing the supply
curve for postal services to shift to the
left, from S to S1.
Compare the new equilibrium price 4.
and quantity to the original
equilibrium price.
The new equilibrium occurs at a lower
quantity and a higher price than the
original equilibrium
PART 1 Graph
 Part 2 :The effect of Email and Text Messaging
1.
Begin by drawing a demand and
supply model reflecting this
relationship.
2.
Does email and text messaging affect
supply or demand?
A change in tastes away from snail mail
toward digital messages will cause a
change in demand for the Postal Service
Is the effect on demand positive or
negative? 3.
A change in tastes away from snail mail toward
digital messages causes lower quantity
demanded of postal services at every given
price, causing the demand curve for postal
services to shift to the left, from D to D1.
Compare the new equilibrium price and 4.
quantity to the original equilibrium price.
The new equilibrium occurs at a lower
quantity and a lower price than the
original equilibrium.
PART 2 Graph
 Part 3 : Combining Factors
1. Parts 1 and 2 are straightforward, but
when we put them together it becomes
more complex.
Think about it this way: in Part 1, the
equilibrium quantity fell due to decreased
supply.
2.
Now consider what happens to the
price. In Part 1, the equilibrium price
increased due to the reduction in
supply.
In Part 2, the equilibrium quantity also fell, this 3.
time due to the decreased demand.
So, putting the two parts together, we would
expect to see the final equilibrium quantity
(Q3) to be smaller than the original equilibrium
quantity (Q1).
4.
But in Part 2, the equilibrium price decreased
due to the decrease in demand.
PART 3 Graph
 Changes in Supply and Demand
LEARNING OBJECTIVES

• Describe the differences between changes in demand and changes in the quantity
demanded.

• Describe the differences between changes in supply and changes in quantity supplied.

It’s hard to overstate the importance of understanding the difference between

shifts in curves and movements along curves. Remember, when we talk about
changes in demand or supply, we do not mean the same thing as changes
in quantity demanded or quantity supplied.

PART.07
 A change in demand refers to a shift in the entire demand curve, which is caused by a variety of
factors (preferences, income, prices of substitutes and complements, expectations, population, etc.). 
In this case, the entire demand curve moves left or right:

Figure 1. Change in Demand. A change in demand means that the entire demand curve shifts
either left or right. The initial demand curve D0 shifts to become either D1 or D2. This could be
caused by a shift in tastes, changes in population, changes in income, prices of substitute or
complement goods, or changes future expectations.
 A change in quantity demanded refers to a movement along the demand curve,
which is caused only by a change in price.  In this case, the demand curve doesn’t
move; rather, we move along the existing demand curve:

Figure 2. Change in Quantity Demanded. A change in the quantity demanded refers to

movement along the existing demand curve, D0. This is a change in price, which is caused by
a shift in the supply curve.
 Similarly, a change in supply refers to a shift in the entire supply curve, which is caused by
shifters such as taxes, production costs, and technology.  Just like with demand, this means
that the entire supply curve moves left or right:

Figure 3. Change in Supply. A change in supply means that the entire supply curve
shifts either left or right. The initial supply curve S0 shifts to become either S1 or S2. This
is caused by production conditions, changes in input prices, advances in technology, or
changes in taxes or regulations.
 A change in quantity supplied refers to a movement along the supply curve, which is
caused only by a change in price.  Similar to demand, a change in quantity supplied
means that we’re moving along the existing supply curve:

Figure 4. Change in Quantity Supplied. A change in the quantity supplied refers to

movement along the existing supply curve, S0. This is a change in price, caused by a shift in
the demand curve.
Thank you very
much ！