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ECONOMICS SUPPLY, DEMAND, AND MARKET EQUILIBRIUM

In economics, the concept of supply, demand, and market equilibrium tells about the interaction
between the buyers and sellers in the market. On this, it occurs the relationship between quantity of
commodity to supply by the sellers at various price which represents the value of a certain
commodity, and the quantity demanded by the consumers. This results into an equilibrium or
balance between the quantity supply and demand, given in an equal price.

DEMAND
Definition:

Quantity of goods that buyers are willing to buy

Law:

When Price goes UP, Quantity demand goes DOWN. When Quantity demand
goes UP, Price goes DOWN.

Relationship:

Quantity demand (Qd) is inversely related to Price (P). Therefore, negative

relationship
Qd=

Slope:

P=

; Ceteris Paribus

Downward

Change of Quantity Demand

Movement along the curve
Factor(s):

Price only

A (Previous/Real Price) is greater than B (New/Current Price)

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Price of B decreases and its Quantity Demand Increases
Example:

Price of Ponkan last February 2016 is Php 10.00, and this July 2016 it decreases into
Php 5.00. What will happen to the Quantity Demand of the Ponkan this July 2016?

Answer:

Quantity Demand of Ponkan increases

A (Previous/Real Price) is less than B (New/Current Price)

Price of B increases and its Quantity Demand decreases
Example:

Price of Ponkan last February 2016 is Php 5.00, and this July 2016 it increases into
Php 10.00. What will happen to the Quantity Demand of the Ponkan this July 2016?

Answer:

Quantity Demand of Ponkan decreases

A (Previous/Real Quantity Demand) is less than B (New/Current Quantity Demand)

Quantity Demand of A decreases and its Price increases
Example:

Quantity Demand of Ponkan last February is 5 pieces every day, and this July
it increases into 10 pieces everyday as it decreases the price into Php 5.00. What
was happened to the Price of Ponkan last February?

Answer:

Price is increasing

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Change of Demand
Shift of Demand Curve
Factors:

Taste, Income, Market size, Expectation, Related Goods

Demand Shifts to the right, as Demand increases

Taste Preference
Taste=
Taste=

Demand Shifts to the left, as Demand decreases

Demand=
Demand=

Example 1:
Aling Pasing is known for her sweet tasty bananacue. She discovers a new ingredient
that adds up taste to her product so that she can gain more customers. What will happen to the demand
of her tasty bananacue?

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Answer: The Demand of her bananacue increases.

Example 2:
CL Fashion Jeans was well-known last 2015 because of its fashionable colored jeans.
Si e people o adays ha ge their style, hat ill happe to the de a d of CLs olored jea s?

Answer: The Demand of her bananacue decreases because the peoples taste i
decreases.

olored jea s

Income
Normal Good (basic needs such as rice)
Income=

Demand=

(direct relationship)

Inferior Good (item bought less often such as dried fish, gadgets)
Income=

Demand=

(inverse relationship)

Example 1:
Charmaine was promoted from her workplace. Thus, her income increases from Php
10,000 to Php 20,000. What will happen to her demand of banana that she eats everyday?

Answer:

Since banana is a normal good, her demand increases as her income increases.

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Example 2:
Charmaine was currently fired by her Manager from her workplace. What will happen to
her demand of rice in the next week?

Answer:
Based on the problem, Charmaine was fired. It means in the next she has no income to
sustain her needs. Since rice is a normal good, her demand of it will decrease.

Example 3:
Angel always eats Camotecue during lunch because she cannot afford to buy a meal.
She perfects all her prelim exams and her father decided to increase her allowance. What will happen to
her demand of camotecue?

Answer:
Angel increases her allowance since camotecue on this case is an inferior good, her
demand to it will decreases

Example 4:
Angel always prefers a High Class Pen rather than a Uni Pen. When her father was
kicked-out from his job, the allowance of Angel was decreased. What will happen to her demand of Uni
Pen?

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Answer:
Since Uni Pen is an inferior good to Angel and her allowance decreases, possibly her
demand to that pen will increase.

Market Size
Number of people=

Demand=

Number of people=

Demand=

Example 1:
Georgos Store is the only seller of Organic Rice in Barangay Maria Cristina since 2010
until this time. However, the population of the said place increases from 5,000 to 10,000. What will
happen to the demand of Organic Rice?

Answer:

The demand increases due to increase of population

Example 2:
Hayahay Funeral Homes is the only established funeral in Digkilaan. However, there
ere e esta lished fu eral ho es a ed Hea e s Me orial i the said pla e. What ill happe to
the demand of Hayahay Funeral Homes?

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Answer:
The demand will decrease. Since there is a new business competitor on the said place,
the number of customers in Hayahay will decrease.

Expectation
Expectation=

Demand=

Expectation=

Demand=

Example 1:

December is a month of Christmas. What will happen to the demand of gift wrappers?

Answer:
Demand of gift wrappers will increase, because during December many people will buy
gifts because of Christmas.
Example 2:

A TV reporter announces that there will be an increase of Php 20.00 in price of rice on

the next month. What will happen to the demand of rice this month?

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Answer:

If the price of rice will expected to increase next month, the demand of rice this month

will increase, because the price of rice this month is cheaper than next month.

Example 3:

A TV reporter announces that there will be an increase of Pup 20.00 in price of rice on

the next month. What will happen to the demand of rice next month?

Answer:

If the price of rice will expected to increase next month, the demand of rice next month

will decrease, because as price increases, quantity demand decreases.

Related Goods
Substitute Goods (goods that can be interchange such as rice and corn)
Price of the Good A=

Demand of Good B=

Price of the Good A=

Demand of Good B=

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Complementary Goods (goods used together such as coffee and sugar)
Price of the Good A=

Demand of Good B=

Price of the Good A=

Demand of Good B=

Example 1:

The price of gasoline increases. What will happen to the demand of cars?

Answer:

The demand of cars decreases, because gasoline and cars are complementary goods.

Thus, the increase price of gasoline affects the demand of cars.

Example 2:

The price of branded deodorant. What will happen to the demand of traditional

deodorizer or Tawas?

Answer:

The demand will increase because traditional deodorizer is a substitute good of branded

deodorant.

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Demand Schedule: (tabular form of Quantity demand and Price)

Demand Equation:

Price (P)

Quantity (Qd)

10

15

Qd= a-bP
where: Qd is the Quantity Demand
a is constant variable
b is the slope
P is the Price

To get b (slope):

Example 1:
Find the Quantity Demand on this equation: Qd= 120-10P. Then make a demand
schedule which Price is from 1 to 3.
Solution:

P= 1,

Qd =120-10(1)
Qd=120-10
Qd=110

P=2,

Qd=120-10(2)
Qd=120-20
Qd=100

P=3,

Qd=120-10(3)
Qd=120-30
Qd=90

Answer:
Demand Schedule:
Price (P)

Quantity (Qd)

110

100

90

Example 2:

Find the Quantity demand on this equation: Qd=20-P, when Price is 5

Solution:

P=5,

Answer:

Qd=20-(5)
Qd=20-5
Qd=15

Note: b=1 on this equation for

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Example 3:

Find the Slope on this equation: 100=200-bP when Price is Php 10.00

Solution:

P=10, 100=200-b(10)
Check: b=10;
100=200-10b
100-200=-10b
-100=-10b
10 = b
Find the slope and constant variable on this

Example 4:

100=200-(10)(10)
100=200-100
100=100

equation: Qd=a-bP, given the demand

schedule below:

Solution:

Find b:

=8

Let: P=10, Qd= 100

Price (P)

Quantity (Qd)

10

100

20

80

30

60

so: b= Check: P=10, Qd= 100

100= a-( )(10)

100= 95-( )(10)

100=a-(-5)

100=95-(-5)

100=a+5

100=95+5

100-5=a

100=100

95=a
Answer:

b=-

and a=95

Example 5:
Give the Quantity Demand of Choco Balls on this equation: Qd=100-10P-I+15N ,
when Price is Php 2.00 and an income of Php 200.00 from 20 buyers.
Solution:

Qd=100-10P-I+15N

P=2, I=200, and N=20

Qd=100-10(2)-(200)+15(20)
Qd=100-20-200+300
Answer:

Qd=180

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SUPPLY
Definition:

Quantity of supply that seller willing to sell

Law:

When Price goes UP, Quantity Supply goes UP. When Price
goes DOWN, Quantity Supply also goes DOWN.

Relationship:

Quantity supply (Qs) is directly related to Price (P). Therefore, positive

relationship

Qs=
Slope:

P=

; Ceteris Paribus

Upward

Change of Quantity Supply

Movement along the curve
Factor(s):

Price only

A (Previous/Real Price) is less than B (New/Current Price)

Price of B increases and its Quantity Supply also increase
Example:

Price of Ponkan last February 2016 is Php 5.00, and this July 2016 it increases into
Php 10.00. What will happen to the Quantity Supply of the Ponkan this July 2016?

Answer:

Quantity Supply of Ponkan increases

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A (Previous/Real Price) is greater than B (New/Current Price)

Price of B decreases and its Quantity Supply decreases
Example:

Price of Ponkan last February 2016 is Php 10.00, and this July 2016 it decreases into
Php 5.00. What will happen to the Quantity Supply of the Ponkan this July 2016?

Answer:

Quantity Supply of Ponkan decreases

Change in Supply
Shift of Supply Curve
Factors:

Resources, Alternative Goods, Technology, Natural Calamities, Expectation,

Subsidies, and Tax

Supply Shifts to the right, as Supply increases

Supply Shifts to the left, as Supply decreases

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Resources (Raw Materials)
Resources=

Supply=

Resources=

Supply=

Example 1:

JBs Ro ki g Chair Produ ts are origi ally ade fro Ratta . If the resour es of ratta
de reases hat ill happe to the supply of JBs produ t?

Answer:

Supply of JBs produ t de reases e ause the resour es of ratta de reases.

Example 2:

Jessa sells Mango Jams. What will happen to the supply of Mango Jams if she sells it in
months of April and May?

Answer:

Supply of Mango Jams increases during April and May since Mangoes are abundant
during those months.

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Alternative Goods
Substitute Goods (goods that can be interchange such as rice and corn)
Price of the Good A=

Supply of Good B=

Price of the Good A=

Supply of Good B=

Complementary Goods (goods used together such as coffee and sugar)

Price of the Good A=

Supply of Good B=

Price of the Good A=

Supply of Good B=

Example 1:

The price of gasoline increases. What will happen to the Supply of cars?

Answer:

The Supply of cars increases, because gasoline and cars are complementary goods.

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Example 2:

The price of rice increase. What will happen to the supply of corn?

Answer:

The supply will decrease because corn is a substitute good for rice.

Technology

Example 1:

Technology (Advance/New)

Supply=

Technology (Obsolete/ Old)

Supply=

Star Steel Company purchase new technology that helps to process steels. What will

happen to the supply of steels from the company?

Answer:

The supply of steel increases because star steel company purchase advance technology.

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Example 2:
Denim Textile Company uses textile machine that was purchased last year 1999 in
producing textile products. What will happen to the supply of the said products?

Answer:

The supply will decrease because the technology that is used by Denim Textile Company

is obsolete.

Natural Calamities (Typhoon, El Nio, Hurricane, Tsunami, Volcano Eruption)

Supply =
Example 1:

Kidapawan, Cotabato suffers from El Nio last December 2015. What will happen to the

supply of rice during that time?

Answer:

The supply of rice decreases because of El Nio.

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Expectation
Expectation=

Supply=

Expectation=

Supply=

Example 1:

February is a Valentines Month. What will happen to the supply of flowers?

Answer:
Supply of flowers will increase, because during February it is expected that many lovers
will buy flowers to their love ones.
Example 2:

A TV reporter announces that there will be an increase of Php 1,000.00 in price of every

sack of rice on the next month. What will happen to the supply of rice this month?

Answer:

If the price of rice will expect to increase next month, the supply of rice this month will

decrease.

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Example 3:

Gas companies announce that there will be a roll back of Php 20.00 in gasoline in the

next month. What will happen to the supply of gasoline next month?

Answer:

If there is a roll back of price in the gasoline next month, the supply of gas will decrease

next month.

Subsidy (Funds, Scholarships, Sponsorships)

Subsidy=

Supply=

Subsidy=

Supply=

Example 1:

Kabutihang Palad Charity distributes goods such as school supplies to every poor

student in the Philippines. Their fund from the sponsors increases from Php 1,000,000 to Php 1,750,000.
What will happen to the supply of their goods in every student?

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Answer:

The supply of goods that they will distribute in every student will increase due to

increase of subsidy.
Tax
Tax=

Supply=

Tax=

Supply=

Example 1:

The tax of cars increases from 10% up to 25%. What will happen to the supply of cars

from Jacar Company?

Answer:

The supply of cars decreases due to high tax.

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Example 2:

Sales Tax of cellophanes in the Philippines reduces 5%. What will happen to the supply

of cellophane in the country?

Answer:

The supply of cellophane will decrease due to 5% decrease of sales tax.

Supply Schedule: (tabular form of Quantity supply and Price)

Supply Equation:

Price (P)

Quantity (Qs)

10

15

Qs= -a+bP
where: Qs is the Quantity Supply
a is constant variable
b is the slope
P is the Price

To get b (slope):

Example 1:
Find the Quantity Supply on this equation: Qs= -12+15P. Then make a supply schedule
which Price is from 1 to 5.

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Solution:

P= 1,

Qs =-12+15(1)
Qs=-12+15
Qs=3

P=2,

Qs=-12+15(2)
Qs=-12+30
Qs=18

P=3,

Qs=-12+15(3)
Qs=-12+45
Qs=33

Answer:
Supply Schedule:
Price (P)

Quantity (Qs)

18

33

Example 2:

Find the Quantity supply when Price is 10 and slope and constant variable are constant.

Solution:
Answer:

P=10, Qs=-a+bP
Qs=-1+(1)10
Qs=9

Example 3:

Find the Slope on this when Qs=100, Price=5, and a=20

Solution:

P=10, 100=-20+b(5)
Check: b=24; 100=-20+(24)(5)
100=-20+5b
100=-20+120
100+20=5b
100=100
120=5b
24 = b
Find the slope and constant variable on this equation: Qs=a-bP, given the supply

Example 4:

Note: Since a and b are constant, therefore both of them are equals to 1

schedule below:

Solution:

Find b:

Let: P=10, Qs= 1

Price (P)

Quantity (Qs)

10

20

30

= 10

so: b=

Check: P=10, Qs= 1

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1= -a+(10)(10)

1=- 99+(10)(10)

100=-a+(100)

1=-99+(100)

100=-a+100

1=1

1-100=-a
-99=-a
99=a
Answer:

b=10 and a=99

Market Equilibrium (E)

Definition:

A state of balance where Supply Curve intersects Demand Curve

Figure 1. Shows point (2, 3) is the Equilibrium point of S0 and D0

Figure 2. Shows 2 equilibrium: E0 and E1

Figure 3. Shows 3 equilibrium: E0 , E1 and E2

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Shortage and Surplus
When Quantity Demand is greater than Quantity Supply. This occurs when a
price is below the equilibrium point.

Shortage:

Qd

>

Qs

When Quantity Supply is greater than Quantity Demand. This occurs when a
price is above the equilibrium point.

Surplus:

Qd

<

Qs

Knowing Shortage and Surplus using Demand and Supply Schedule:

Price

Quantity Supply

Quantity Demand

10

100

Shortage

10

20

80

Shortage

15

30

60

Shortage

20

40

40

Equilibrium

25

50

20

Surplus

30

60

10

Surplus

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Using Graph:

Using Equilibrium Equation:

Qd

or

Qs

a-bp

-a+bp

Example:
Tell if it is in Shortage, Surplus, or Equilibrium using this equations: Qd=100-P and Qs=-10+2P
given the Price Schedule below.
Price

10

20

30

P=10, Qd
100-10
90
90

=
Qs
=
-10+2(10)
=
-10+20
>
10
Shortage

P=20, Qd
100-20
80
80

P=40, Qd
100-40
60
60

=
Qs
=
-10+2(40)
=
-10+80
<
70
Surplus

P=50, Qd
=
100-50 =
50
=
50
<
Surplus

40

=
Qs
=
-10+2(20)
=
-10+40
>
30
Shortage

50

P= 30,

Qs
-10+2(50)
-10+100
90

Find the equilibrium price and quantity using the given equation from the example.
Qd
=
Qs
In finding Quantity: Let P =
100-P =
-10+2P
100- 36.67
=
100+10 =
2P+P
63.33
=
110
=
3P
63.33

=
P or P= 36.67
63
=
Answer:

Qd =
Qs
100-30 = -10+2(30)
70
= -10+60
70
> 50
Shortage

or 36.67
-10+2(36.67)
-10+73.34
63.34
63

Equilibrium Price is 36.67 and Equilibrium Quantity is 63

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