APPLIED ECONOMICS

Market Demand, Supply and

Equilibrium
Module 3
Topic Overview;
1. Differentiate the law of supply from the law of demand
2. Analyze the market demand and market supply by
interpreting the demand and supply schedule and curve
3. Appreciate how the demand and supply are influenced
by price and other several factors.
4. Determine the market equilibrium and the effect of
disequilibrium
 What do we mean by the word Market?

• In the subject Principles of Marketing the word “Market”

is usually used as another term for customer like the target
market or what we are referring as target customer. It can
also describe the place where financial instruments are
offered, the financial market.
• In this module, it refers to the place where the
sellers can sell their products to their
buyers/customers usually in exchange for money.
ACTIVITY #1
 Demand and Supply
• If our needs and wants can be backed by
our buying power, it becomes demand.
• It means that we have the ability and
the willingness to buy the product at a
given price within a given time period.
• On other hand, the supply refers to the
quantity of goods and services that
firms are ready and willing to sell at a
given price within a period.
 The Law of Demand

The law of demand states that: all

other things remain constant
(Ceteris Paribus), the higher the
price of a good the lesser the
demand for that good and the lesser
the price the higher the demand.
 The relationship between the price and demand is
inversely related. It is because of the
substitution effect and income effect.

 Substitution effect means that if the price of

Product A increases the consumer will look for its
substitute and will cause decrease in quantity
demanded for Product A.

 On the other hand, having the same income, an

increase in price of a product will cause a decrease
in quantity demanded because the consumer may
not afford to buy all the things just like before.
 The Law of Supply
The law of supply states that the
quantity of products offered to be sold
is directly related with the price.

It means that when the price increases

the quantity supplied increases too and
if the price decreases the quantity
supplied decreases too.
 Analyzing Demand
The demand can be analyzed using:
A. Demand Schedule –a table that shows the
price of a good and the quantity demanded
for that good at a given price within a given
period.

B. Demand Curve – a graphical

representation that shows the relationship
between the price of a good and the quantity
demanded for that good at a given price. It
usually uses the information in the demand
schedule.
Changes in Quantity Demanded
compared to Changes in Demand

• Changes in quantity demanded

happened when there is a change in
the demand for a product because
of the change in price.
For example, the quantity demanded
for chicken at ₱120.00 was 10 kilos per
month but when the price of the
chicken increased by ₱10.00 the
quantity demanded decreased to 8
kilos. Another increase in price of the
chicken happened making it ₱140.00
per kilo because of that the quantity
demanded decreased again to 7 kilos.
There is a change in demand when
there is a change in quantity
demanded because of some
factors other than price.
For example, the quantity demanded
for chicken at ₱120.00 is 10 kilos per
month but because of the issues
related to ASF (African swine flu) the
quantity demanded increases to 12 kilos
at the same price. When the price the
chicken increases to ₱130.00 the
quantity demanded changed to 10 kilos
and 8 kilos at ₱140.00
The change in demand is not always positive sometimes
it falls. The change in demand may be affected by several
factors such as:

• Taste and preferences

• Income
• Seasonal products
• Population change
• Prices of related good (substitute/complementary goods)
• Expected future prices, income and credit
 Analyzing Supply
The supply can be analyzed using:
A. Supply Schedule - table that shows the
prices of a good and the quantity
supplied at each price at a given point of
time
B. Supply Curve - a graphical
representation that shows the
relationship between the price of a good
and the quantity supplied at a given
point of time.
Change in Quantity Supplied compared
to Changes in Supply

Changes in quantity supplied happened

when there is change in the quantity
of goods produced to be sold because
of the change in price. It happens
because businessman or entrepreneurs
prepared to sell their goods at a
higher price to yield more profit.
Factors that can Cause Changes in Supply

• Technology
• Cost of production
• Number of sellers
• Government policies (Taxes and subsidies)
• State of nature (weather)
• Prices of related goods produced
• Future expectations (possible increase in price)
 Market Equilibrium

QUANTITY DEMANDED = QUANTITY SUPPLIED

 Market Equilibrium
 As stated in the law and supply and demand,
market equilibrium happens when there is
an equal demand and supply causing the
price to remain the same.
 When the supply is greater than the demand
it causes the price to decrease but when the
demand is greater than the supply the price
increases.
Equilibrium market price – price agreed by the buyer and seller.

Figure 5 shows the equilibrium between the quantity demanded and quantity
supplied. It is the point of intersection between the supply and the demand
curves. It shows that the Equilibrium price (Pe) is 25 and the equilibrium
quantity (Qe) is 140. It means that if the price and quantity change there will
be market disequilibrium (shortage/surplus).
Remember !
 When the quantity supplied is
greater than quantity demanded
there will be surplus.
 On the other hand, shortage is when
the quantity demanded is greater
than quantity supplied.
 Change in demand or supply may
result to the changes in market
equilibrium.
INFORMATION!

To protect the seller or the buyer

when there is market
disequilibrium the government sets
the minimum price (floor price) or
maximum price (ceiling price) for
some goods, this is what we called
price control.
 PERFOMANCE # 3

Do the Performance at your home…

THANK YOU…