PRICE AND THE

INTERACTION OF
DEMAND AND
SUPPLY
 MARKET EQUILIBRIUM
A market is said to be in
equilibrium when the
quantity of goods and
services that consumers are
willing to buy matches the
quantity of goods and
services that producers are
willing to sell.
 MARKET EQUILIBRIUM
As a result, consumers
are able to buy all they
want to buy and
producers are able to
sell all they want to
sell.
Demand Curve Supply Curve
 MARKET EQUILIBRIUM

The equilibrium lies on the point

where the price is P5000 and the
quantity of Cellphones is
 Markets naturally move
toward their equilibrium.
Amarket that is not in
equilibrium will tend to
move to a point of
equilibrium through
changes in price and
quantity.
 Markets naturally move
toward their equilibrium
When the market is
below the equilibrium
price, the market price
will rise until it reaches
equilibrium level.
 Markets naturally move
toward their equilibrium
When the market is
above the equilibrium
price, the market price
will go down until it
reaches equilibrium.
 Markets naturally move
toward their equilibrium
•Shortage – happens when
the market price is lower
than the equilibrium price.
- Shortage is the excess of
quantity demanded over
quantity supplied.
 Markets naturally move
toward their equilibrium
Surplus – happens when
the market price is higher
than the equilibrium price.
- Surplus is the excess of
quantity supplied over
quantity demanded.
 MARKET EQUILIBRIUM

120,000 170,000

140,000 200,000

The equilibrium lies on the point

where the price is P5000 and
the quantity of Cellphones is
160,000.
 Why do Markets naturally move
toward their equilibrium?
At the market price of
P4000, consumers want to
purchase a total of 200,000
pieces, but firms are willing
to sell only 140,000 pieces.
There is a shortage of
60,000 pieces of cellphone.
 Why do Markets naturally move
toward their equilibrium?
At the market price of
P6,000, consumers are
willing to buy 120,000 pieces
of cellphone while the firms
are willing to sell 170,000
pieces. There is a surplus of
50,000 pieces of cellphone.
Why do Markets naturally move
toward their equilibrium?
 Why do Markets naturally move
toward their equilibrium?
…shortage:
Firms will notice that their
products get sold out too
quickly so that so that some
consumers are left with
nothing to purchase.
 Why do Markets naturally move
toward their equilibrium?
…shortage:
With many buyers chasing a
limited supply of goods, firms
can take advantage of the
situation by raising the price and
would continue to do so until
price equals P5000, the
equilibrium price.
 Why do Markets naturally move
toward their equilibrium?
…surplus:
The firms will eventually realize
they cannot sell all they want at
the going. They will try to
increase sales by cutting the
price and would continue to do
so until price equals P5000, the
equilibrium price.
CHANGES IN DEMAND
AND SUPPLY AND
MARKET
EQUILIBRIUM
(EFFECT OF CHANGES IN
DEMAND AND SUPPLY
ON THE EQUILIBRIUM
PRICE AND QUANTITY)
EFFECT OF CHANGES IN DEMAND ON THE
EQUILIBRIUM PRICE AND QUANTITY
EFFECT OF INCREASE IN DEMAND ON THE EQUILIBRIUM
PRICE AND QUANTITY
At the intersection of
the supply curve and
the original demand
curve D0, the market
price is P0 and the
equilibrium quantity
is Q0. An increase in
demand means a
rightward shift of the
demand curve from
D0 to D1.
EFFECT OF INCREASE IN DEMAND ON THE
EQUILIBRIUM PRICE AND QUANTITY
At the original market
price P0, a shortage
occurs - quantity
demanded exceeds the
quantity supplied. The
price rises until a new
equilibrium is
established with a higher
equilibrium price P1 and
higher equilibrium
quantity Q1.
EFFECT OF INCREASE IN DEMAND ON THE
EQUILIBRIUM PRICE AND QUANTITY
Thus, an increase
in demand raises
both the
equilibrium
price and the
equilibrium
quantity.
 EFFECT OF DECREASE IN DEMAND ON
THE EQUILIBRIUM PRICE AND QUANTITY
At the intersection of
the supply curve and the
original demand curve
D0, the market price is
P0 and the equilibrium
quantity is Q0. A
decrease in demand
means a leftward shift of
the demand curve from
D0 to D1.
EFFECT OF DECREASE IN DEMAND ON THE
EQUILIBRIUM PRICE AND QUANTITY
At the original market
price P0, a surplus
occurs - quantity
supplied exceeds the
quantity demanded. The
price falls until a new
equilibrium is
established with a lower
equilibrium price P1
and lower equilibrium
quantity Q1.
EFFECT OF DECREASE IN DEMAND ON THE
EQUILIBRIUM PRICE AND QUANTITY
Thus, a decrease
in demand
lowers both the
equilibrium
price and the
equilibrium
quantity.
EFFECT OF CHANGES IN DEMAND ON THE
EQUILIBRIUM PRICE AND QUANTITY
EFFECT OF INCREASE IN SUPPLY ON THE
EQUILIBRIUM PRICE AND QUANTITY
At the intersection of
the demand curve and
the original supply
curve S0, the
equilibrium price is P0
and the equilibrium
quantity is Q0. An
increase in supply
means a rightward
shift of the supply
curve from S0 to S1.
EFFECT OF INCREASE IN SUPPLY ON THE
EQUILIBRIUM PRICE AND QUANTITY
At the original market
price P0, a surplus
occurs - quantity
supplied exceeds the
quantity demanded. The
price falls until a new
equilibrium is
established with a lower
equilibrium price P1
and higher equilibrium
quantity Q1.
EFFECT OF INCREASE IN SUPPLY ON THE
EQUILIBRIUM PRICE AND QUANTITY
Thus, an
increase in
supply lowers
the equilibrium
price and raises
the equilibrium
quantity.
 EFFECT OF DECREASE IN SUPPLY ON THE
EQUILIBRIUM PRICE AND QUANTITY
At the intersection of
the demand curve and
the original supply
curve S0, the
P1 equilibrium price is P0
and the equilibrium
P0
quantity is Q0. A
decrease in supply
means a leftward shift
of the supply curve
from S to S .
 EFFECT OF DECREASE IN SUPPLY ON THE
EQUILIBRIUM PRICE AND QUANTITY
At the original market
price P0, a shortage
occurs - quantity
demanded exceeds the
P1
quantity supplied. The
price rises until a new
P0
equilibrium is
established with a
higher equilibrium price
P1 and lower
equilibrium quantity Q1.
 EFFECT OF DECREASE IN SUPPLY ON THE
EQUILIBRIUM PRICE AND QUANTITY
Thus, a decrease
in supply raises
the equilibrium
price and
P1

lowers the
P0

equilibrium
quantity.
 GOVERNMENT INTERVENTION AND THE
MARKET PRICE
The government imposes
restrictions on how high or
low a market price may go
when it believes that the
market price of a good or
service is unfair – too high for
many buyers or too low for
GOVERNMENT INTERVENTION AND THE
MARKET PRICE
PRICE CONTROL - is the term
used to describe the
government regulation on
the price at which a good can
be sold. It can take the form
of an imposition of a price
ceiling or a price floor.
GOVERNMENT INTERVENTION AND THE
MARKET PRICE
Price Ceiling Price floor
-Government - Government
restriction restriction
on how high on how low a
a price may price may go.
go.
 GOVERNMENT INTERVENTION AND THE
MARKET PRICE
The price ceiling is the
maximum price above which
the price charged by suppliers
for a commodity is not
permitted to rise. It is usually
set for basic needs like food
and medication when natural
calamities strike.
GOVERNMENT INTERVENTION AND THE
MARKET PRICE
The price floor is the minimum
price below which the price
buyers pay for a commodity is
not permitted to fall. It is
usually set for agricultural
crops in order to keep the
income of farmers from falling
toward an unacceptable level.
CHALLENGE QUESTIONS
1.At P40, quantity
demanded is ____.
2.At P70, quantity
supplied is _____.
3.The equilibrium
price is _____.
4.The equilibrium
quantity is ______.
5.At P80, excess
supplies is ____
CHALLENGE QUESTIONS
6. At the price of
_____, quantity
demanded is 50.
7. At the price of
_____, quantity
supplied is 70.
8. At P50, quantity
supplied is _____
and quantity
demanded is________.
CHALLENGE QUESTIONS
9. If the price
floor is at P70,
the surplus is
_______.
10. If the price
ceiling is set at
P20, the
shortage is
________.
Challenge Yourself:
Identify whether the situation
depicts a surplus, shortage, or
equilibrium.
_________1. The quantity supplied
of sweet potato in Pasig City
Mega Market is 200 kilograms
while the quantity demanded
is also 200 kilograms.
Challenge Yourself:
Identify whether the situation
depicts a surplus, shortage, or
equilibrium.
_________2. One hundred pieces of
ballpen are needed to Liberato
Damian Elementary School, but
only 50 pieces are being sold at
Dale’s School Supplies store.
Challenge Yourself:
Identify whether the situation
depicts a surplus, shortage, or
equilibrium.
_________3. The buyers and
sellers in a lanzones market
agreed on the price of
P50.00 for a kilo of
lanzones.
Challenge Yourself:
Identify whether the situation
depicts a surplus, shortage, or
equilibrium.
______4. There are 90 cavans
of rice in the warehouse of
Mr. Ramos while only 20
cavans are demanded by
consumers.
Challenge Yourself:
Identify whether the situation
depicts a surplus, shortage, or
equilibrium.
_________5. The town residents
purchased all the bread sold
by Aling Berna and other
sellers.
Challenge Yourself:
Identify whether the situation
depicts a surplus, shortage, or
equilibrium.
_________6. Buyers want two
dozens of eggs but only ten
pieces are being sold in the
stores.
Challenge Yourself:
Identify whether the situation
depicts a surplus, shortage, or
equilibrium.
_________7. Six kilograms of
tilapia were sold in the wet
market, but two extra kilos
remained unsold.
Challenge Yourself:
Identify whether the situation
depicts a surplus, shortage, or
equilibrium.
_________8. Ten packs of
cigarettes wer bought in the
morning. For unknown
reasons, the remaining six
packs had not been bought.
Challenge Yourself:
Identify whether the situation
depicts a surplus, shortage, or
equilibrium.
_________9. Jojo and the other
sellers were able to get
home early because all the
bananas from Davao were
sold.
Challenge Yourself:
Identify whether the situation
depicts a surplus, shortage, or
equilibrium.
_________10. The stock of food
in a school canteen was left
untouched because classes
were suspended