lesson 5-market equilibrium

8/7/2019 lesson 5-market equilibrium

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I NEED TO FIND MY

EQUILIBRIUM«

Demand + Supply = Market



Targets«

Review the concept of demand & supply

Understanding the market forces or how

supply and demand together set the price of a good and the quantity sold

Applying the concept of market forces to

everyday events



Back to the basics

Demand = buyer¶sbehavior

Supply = seller¶sbehavior



Demand & Supply

Demand

Change in the Price ±change in QUANTITYDEMANDED; no newdemand

Change in ITPgENc ±

change in demand; there is a new demandat each price level

Supply

Change in the Price ±change in QUANTITYSUPPLIED; no newsupply

Change in ITPETNG±

change in supply; thereis a new supply at eachprice level



Demand & Supply

Demand

Change in demand---

Increase in demand ---demand curve shifts tothe right

Decrease in demand---

demand curve shifts tothe left

Supply

Change in supply

Increase in supply---supply curve shifts tothe right

Decrease in supply---

supply curve shifts tothe left



D¶ MARKET

Is an institution or mechanism that brings

together buyers and sellers of a particular good

or service.

The market is a process of competing bids and

offers.



Examples of market

Retail stores

Gas station

Mall / Supermarket E-commerce site ± E-bay, Amazon etc

Philippine Stock Exchange

Philippine Dealing System P/$

Labor market ± placement office

Etc, etc



Markets«

Link potential buyers with potential sellers

May be local or international

Maybe personal involving face-to-facecontact between buyers and sellers

Or impersonal which means that buyers and

sellers do not see or know each other



Why are roses expensive during

Valentine¶s Day?



Why are vegetables and fish

expensive after a typhoon?



Why are fruits cheap during

summer?



The answer my friendis«DEMAND & SUPPLY!

WHY DOES PRICE GO UP OR DOWN?



THE EQUILIBRIUM«

PRICE AND QUANTITY



Demand & Supply For Shoes

PRICE DEMAND SUPPLY

0 20 0500 15 5

750 10 10

1000 5 15

1250 0 20

EQUILIBRIUM

PRICE =

MARKET

CLEARING

PRICE

EQUILIBRIUM

QUANTITY



@ equilibrium price, D = S

D

S

10

750

At P750

Buyers demand forShoes coincides with

The sellers production

Of shoes.

Market clears!



What if« the price is higher than

the equilibrium price?

If price is higher,

Supply > Demand

Surplus occursBecause producers

Will produce more

While buyers will

Demand less.



What if« the price is lower than

the equilibrium price?

If price is lower,

Supply < Demand

Shortage occ

ursBecause producers

Will produce less

While buyers will

Demand more



Market will adjust «

But this SURPLUS willBe eliminated because

Sellers will lower their

Prices down to the

Equ

ilibriu

m price thenMarket clears again!

But this SHORTAGE will

Be eliminated becauseBuyers will bid up the

Prices up to the

Equilibrium price then

Market clears again!



Demand & Supply For Shoes

PRICE DEMAND SUPPLY

0 20 0500 15 5

750 10 10

1000 5 15

1250 0 20

BUYER S

WILLTRY TO BID UP

THE PRICE

SELLER S

WILL SELL AT

ADISCOUNT



IF THERE IS AN IMBALANCE

IN THE MARKETWHATWILL

ADJUST?

PRICETHE PRICE WILLADJUST TO BRING THE

MARKET INTO BALANCE OR EQUILIBRIUM



STATIC ANALYSIS

What happens to equilibrium price

and quantity when«

1. Increase in Demand

2. Decrease in Demand

3. Increase in Supply4. Decrease in Supply





What if both curves change?

There are several possible outcomesdepending on the relative size of the demand

and supply shifts. Find the initial equilibrium price and quantity

using the initial demand and supply curves

Find the new equilibrium price and quantityfrom the new demand and supply curves



LET¶S DO SOME MARKETBALANCE!!



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lesson 5-market equilibrium