Demand and

Supply
Introduction and Market Equilibrium

What did we do?

Experiment on Demand and Supply

Find a buyer or a seller that will make you earn a

surplus or a profit.

Where were we?

MARKET

What was/were bought/sold?

ONE/SAME product

or

WHY?

SEVERAL/DIFFERENT products

What happened?
Both the buyers and sellers scouted for the best

price that matched their expectations

SAVE!
Bargain a lower price than
this from a seller.

BUYER (B)
DELA CRUZ, S.

10
0

SELLER (S)
REYES, R.

60

PROFIT!
Charge a higher price
than this to a buyer.

I am
willing
to buy
up to
P130

I am
willing
to buy
up to
P90

I am
willing
to buy
up to
P110

D
P855
@ P8
onee @
Don

I am willing
to sell for
as low as
P100

PP110055
@
nee @
D
Doon

Done @
@
Done
P125
P125

What happened?
I am willing
to sell for
as low as
P80

Selle
r

Selle
r
I am willing
to sell for
as low as
P95

Selle
r

What Happened?
1 _______
SALES CONTRACT ROUND NO.
T.
GO,
R.
BUYERS LAST NAME:FRANCISCO,
______________________
SELLERS LAST NAME:
_______________________
AGREED (SPOT) PRICE:

PHP 100
BUYERS SURPLUS
Max Buying Price less Agreed Price

PHP 50

SELLERS PROFIT
Agreed Price less Min Selling Price

PHP 45

What Happened?
1 _______
SALES CONTRACT ROUND NO.
C.
FERNANDEZ,
M.
BUYERS LAST NAME: DAVID,
______________________
SELLERS LAST NAME:
_______________________
AGREED (SPOT) PRICE:

PHP 130
BUYERS SURPLUS
Max Buying Price less Agreed Price

PHP 100

SELLERS PROFIT
Agreed Price less Min Selling Price

PHP 5

What Happened?
1 _______
SALES CONTRACT ROUND NO.
C.
LAPUZ,
K.
BUYERS LAST NAME: GUIAO,
______________________
SELLERS LAST NAME:
_______________________
AGREED (SPOT) PRICE:

PHP 160
BUYERS SURPLUS
Max Buying Price less Agreed Price

PHP 3

SELLERS PROFIT
Agreed Price less Min Selling Price

PHP 105

What Happened?
1 _______
SALES CONTRACT ROUND NO.
J.
ALCANTARA,
A.
BUYERS LAST NAME:ABESAMIS,
______________________
SELLERS LAST NAME:
_______________________
AGREED (SPOT) PRICE:

PHP 100
BUYERS SURPLUS
Max Buying Price less Agreed Price

- PHP 40

SELLERS PROFIT
Agreed Price less Min Selling Price

PHP 50

What Happened?
1 _______
SALES CONTRACT ROUND NO.
M.
CASTILLO,
J.
BUYERS LAST NAME:BENIPAYO,
______________________
SELLERS LAST NAME:
_______________________
AGREED (SPOT) PRICE:

PHP 150
BUYERS SURPLUS
Max Buying Price less Agreed Price

- PHP 40

SELLERS PROFIT
Agreed Price less Min Selling Price

- PHP 40

What Happened?
1 _______
SALES CONTRACT ROUND NO.
J.
MENDOZA,
A.
BUYERS LAST NAME: LASAM,
______________________
SELLERS LAST NAME:
_______________________
AGREED (SPOT) PRICE:

PHP 120
BUYERS SURPLUS
Max Buying Price less Agreed Price

PHP 50

SELLERS PROFIT
Agreed Price less Min Selling Price

- PHP 20

What Happened?
1 _______
SALES CONTRACT ROUND NO.
G.
ZAMORA,
M.
BUYERS LAST NAME:PEREZ,
______________________
SELLERS LAST NAME:
_______________________
AGREED (SPOT) PRICE:

PHP 100
BUYERS SURPLUS
Max Buying Price less Agreed Price

PHP 70

SELLERS PROFIT
Agreed Price less Min Selling Price

PHP 0

What Happened?
1 _______
SALES CONTRACT ROUND NO.
G.
RAMOS,
M.
BUYERS LAST NAME:RAMIREZ,
______________________
SELLERS LAST NAME:
_______________________
AGREED (SPOT) PRICE:

PHP 100
BUYERS SURPLUS
Max Buying Price less Agreed Price

PHP 70

SELLERS PROFIT
Agreed Price less Min Selling Price

PHP 10

What Happened?
1 _______
SALES CONTRACT ROUND NO.
N.
ROMUALDEZ,
M.
BUYERS LAST NAME:ROSALES,
______________________
SELLERS LAST NAME:
_______________________
AGREED (SPOT) PRICE:

PHP 100
BUYERS SURPLUS
Max Buying Price less Agreed Price

PHP 70

SELLERS PROFIT
Agreed Price less Min Selling Price

PHP 10

What now?
Max Buying
Price/
Willingness to
Pay
230
100
220
95
210
90
200
85
200
85
180
80
150
75
150
75
150
70
130
60
120
60
110

What now?
Min Selling
Price/ Min
Ability to
Produce
20
90
20
100
30
110
40
120
45
120
50
120
50
125
60
130
70
130
75
140
80
150
85

What now?
Demand: Willingness to Pay
Max Buying
Price/
Willingness to
Pay
230
95
220
90
210
85
200
85
200
80
180
75
150
75
150
70
130
60
120
60
110
60
100

What now?
Demand: Willingness to Pay

What now?
Supply: Willingness to Sell
Min Selling
Price/ Min
Ability to
Produce
20
90
20
100
30
110
40
120
45
120
50
125
50
130
60
130
70
140
75
150
80
85

What now?
Supply: Willingness to Sell

What now?

What Now?
Agreed

Prices

Average

Cobb Webb
Theorem

# of Trades

Round 1
80
75
85
115
100
155
45
85
65
85
50
110
135
65
140
75
91.5625
16

Round 2
Round 3
Round 4
60
97
100
75
85
60
130
115
100
105
100
60
140
150
80
60
140
90
90
70
160
110
75
125
70
75
85
115
90
135
75
110
95
100
110
65
80
55

65

65

93.07692308 93.46666667
96.25
13

15

12

What Now?
Agreed

Prices

Average

Cobb Webb
Theorem

# of Trades

Round 1
80
75
85
115
100
155
45
85
65
85
50
110
135
65
140
75
91.56

Round 2
60
75
130
105
140
60
90
110
70
115
75
100
80

93.076

Round 3
97
85
115
100
150
140
70
75
75
90
110
110
55
65
65

93.46

Round 4
100
60
100
60
80
90
160
125
85
135
95
65

96.25

16

13

15

12

What Now?
Agreed

Prices

Average
# of
Trades

Cobb Webb
Theorem

Round 1
120
95
60
90
80
130
90
85
60
95
70
130
75
125
70
91.66

Round 2
130
73
130
70
100
70
125
40
130
110
80
90
110
100
75
95.53

Round 3
80
110
125
60
80
130
65
100
80
75
90
110
80
67.5

89.46

Round 4
70
120
120
85
110
100
90
105
100
75
100
95
95
70
55
92.67

15

15

14

15

What Now?
Agreed

Prices

Average
# of
Trades

Cobb Webb
Theorem

Round 1
80
90
100
75
50
60
60
170
65
75
100
70

82.92

Round 2
50
80
95
82
145
75
53
110
100
65
100
65
145
100
95
65
89.06

Round 3
95
60
90
80
140
150
80
82
70
75
75
100
100

92.08

Round 4
95
90
60
115
65
70
90
150
150
95
95
80
100
95

96.43

12

16

13

14

What now?
P

Market Equilibrium
160
140
120
Demand
Polynomial (Demand)
Supply
Polynomial (Supply)

100
80
60
40
20
0

1
0

3
2

5
4

7
6

9
8

11 13 15 17 19 21 23
10 12 14 16 18 20 22 24

Qd/Qs

What now?
P

Market Equilibrium
160
140
120
Demand
Polynomial (Demand)
Supply
Polynomial (Supply)

100
80
60
40
20
0

1
0

3
2

5
4

7
6

9
8

11 13 15 17 19 21 23
10 12 14 16 18 20 22 24

Qd/Qs

What now?
P

Measuring Welfare
160
140
120
Demand
Polynomial (Demand)
Supply
Polynomial (Supply)

100
80
60
40
20
0

1
0

3
2

5
4

7
6

9
8

11 13 15 17 19 21 23
10 12 14 16 18 20 22 24

Qd/Qs

What now?
P

Measuring Welfare
160
140
120
Demand
Polynomial (Demand)
Supply
Polynomial (Supply)

100
80
60
40
20
0

1
0

3
2

5
4

7
6

9
8

11 13 15 17 19 21 23
10 12 14 16 18 20 22 24

Qd/Qs

What now?
Deriving the
demand equation

Given:

Qd

300

50

200

100

DEMAND EQUATION:

What now?
Deriving the
supply equation

Given:

Qs

50

250

100

400

SUPPLY EQUATION:

What now?
Deriving the equilibrium price and quantity (Pe and Qe)
Qd = Qs

Substitute P to Qd and Qs
equations:

Practice
Given:

Qd
500
350

P
25
50

Qs
400
650

Derive the Demand Equation.

Derive the Supply Equation.
What is the Equilibrium Price and Quantity?
Show market equilibrium in a graph

Equilibrium Dynamics
How factors affect market equilibrium through

demand and/or supply

DEMAND
Factors

What happens to the Qd of the good

if factor increases?

if factor decreases?

Price of the good

Income

Normal good products/services you consume or avail when your income

increases
Inferior good products/services you let go when your income increases

Equilibrium Dynamics
How factors affect market equilibrium through

demand and/or supply

DEMAND
Factors
Price of substitute
Price of complement
Population
Taste/Preference
Price expectations
Time/Season

What happens to the Qd of the good

If factor increases

If factor decreases

Equilibrium Dynamics
How factors affect market equilibrium through

demand and/or supply

SUPPLY
Factors
Price of the good
Cost of Production
Consumer Demand
# of Competitors
Production Technology
Time/Season

What happens to the Qs of the good

If factor increases

If factor decreases

Equilibrium Dynamics
If the price of the good and/or other
factor/s affect demand and/or supply,
how will the new market equilibrium
be achieved?

Equilibrium Dynamics
S
2

surplu
s
Qs
Qd

Pe
3

Qe

Movement in D
and S Curves due
to price change

Scenario:
Product: Notebook
The cost of paper, a raw
material in producing a
notebook, decreases.
The supply curve will
1 shift to the right. Qs
increases but P remains
constant.
Because of the shift, Qs >
2
Qd, creating a surplus.
3 To attract demand, there
will be a downward
pressure to the price of
notebook so P
Law of Demand P, Qd
Law of Supply
Qs

P ,

Equilibrium Dynamics
What happened?

S
S
Pe

Increase in supply due to

decrease in cost of
production
To achieve new equilibrium:
Pe
Qe

Qe

Equilibrium Dynamics
When does a curve SHIFT happen?

When does a MOVEMENT along a curve

happen?

Equilibrium Dynamics
Scenario:
Product: Blue Feather
notebook
The price of Cattleya
notebook, a competitor of
Blue Feather, increases.
1

S
3

Pe
1

D
Qe

Equilibrium Dynamics
S

Pe

D
Qe

What happened?

Equilibrium Dynamics
S
2

Scenario:
Product: Corona notebook
The paper of Corona notebooks
becomes rough affecting its
quality.
1

Pe
2
3

D
1

Qe

Equilibrium Dynamics
What happened?

Pe
D
D
Qe

Equilibrium Dynamics
1

S
3

Scenario:
Product: notebook
New competitors are entering
the notebook business.
1

Pe
2
2

D
Qe

Equilibrium Dynamics
What happened?

Pe
D
D
Qe

Equilibrium Dynamics
Practice
Determine: 1) shift 2) effect 3) equi price and 4) equi quantity of
the given situations.
Draw the graph and explain the process of reaching the new
market equilibrium.
Ex.
Produ
ct
Ice
cream

Situation

Shift

Effect

Pe

Its
Increase Shortage Increase
summer
in
time! Im Demand
craving for (shift to
something
the
cold!
right)
For the graph, see your notes for reference.

Qe
Increase

Equilibrium Dynamics
Practice
Given situations:
Product

Situation

shirt

My allowance increased! I will go to the mall on Saturday.

vegetables

Typhoon Ineng greatly hit the farms in Baguio, which are

the sources of vegetables and fruits in Manila.

Cebu Pac

News circulated about the unprofessional service of Cebu

pac.

smartphone

A new and efficient technology is released for making

smartphones.

Pepper spray

With the high crime rate in the Philippines, it becomes a

necessity to have a pepper spray.

Hotdog

They say that hotdogs are cancerous.

printer

The price of ink decreased.

Equilibrium Dynamics
Practice
CHALLENGE QUESTION:
Read the given statement, draw its graph and answer the
questions that follow.

The initial equilibrium quantity and equilibrium price for Jack n

Jill Potato Chips was set at (25, 30). The price of Oishi Potato
Chips decreased from 32 to 27. Because of this, the quantity
demanded for Jack n Jill Potato Chips changed by 6 units. Its
price eventually changed by 3 units. What would be the new
equilibrium price and equilibrium quantity of Jack n Jill Potato
Chips? Use an interval of one for the graph.