DEMAND, SUPPLY, EQUILIBRIUM,

ROLE OF GOVERNMENT IN PRICING

DEMAND
Refers to the entire relationship
between the quantity demanded of a
product and the price of that product.
2 Important elements:
The willingness or the desire to buy
The ability to buy or the purchasing
power of the consumers.
absence of one of the elements would
mean no demand.

 Demand is the quantity of a good or

service that consumers are willing
and able to purchase during a
specified period under a given set of
economic conditions. The time frame
may be an hour, a day, a month or a
year.
DEMAND SCHEDULE
- A table showing the different units of the
product that can be sold at different
prices

 DEMAND CURVE
It is the graphical presentation of the
demand schedule.

LAW OF DEMAND:
when the price of the product is
high, the demand for that product will
go down and vice-versa at ceteris
paribus

DEMAND FUNCTION
Qd = 500 5P

 DEMAND SCHEDULE for Stuffed Toys

POINT
OR
SITUATIO
N

PRICE (Php)

QUANTITY

50

45

10

40

20

35

30

30

40

25

50

20

60

15

70

10

80

90

SUPPLY
Refers to the quantity of goods and
services which the supplier is willing
and able to trade at alternative
prices.
the willingness and the capacity of the
supplier is the basis of declaring the
supply in the market.
price is the important factor that
determines the quantity of goods that
suppliers are willing to sell.

 SUPPLY FUNCTION
A mathematical equation which illustrates the
relationship of the price and supply.
Qs dependent variable (quantity supplied)
P independent variable (price)
Qs = -400 + 80P
Where:
-400 = represents the quantity which the supplier
does not want to sell at a the low price of P5.00.
any change in Qs is related to the value of 80P.

SUPPLY SCHEDULE
- A table showing the different units of the
product that can be sold at different prices

SUPPLY SCHEDULE OF PENCIL

POINT

PRICE

Qs

240

10

400

12

560

15

800

THE TABLE ABOVE SHOWS THAT THE SUPPLY

_______________ AS THE PRICE CONTINOUSLY INCREASE.

To get for P in the equation, if it is missing in the table:

240 /80P = 3P
3P + given price in point A (P5.00) = P8.00

 SUPPLY CURVE
It is the graphical presentation of the
supply schedule.

LAW OF SUPPLY:
when the price of the product is
high, the producers are willing to sell
more and vice-versa at ceteris paribus

FACTORS THAT AFFECT THE SUPPLY

1. COSTS
Production costs

if

Tax
Salaries of workers
Price of raw materials
Operating expenses
production cost is high, supply of the product in the market is low.

2. SUBSIDY
- assistance provided by the government to small-scale producers.
subsidy will increase the supply of product in the market.
3. WEATHER/CLIMATE
-weather condition affects the production of goods especially agricultural
products.
4. TECHNOLOGY
-the use of modern machineries speed up production processes and increase
output.
5. NUMBER OF SELLERS
- the number of sellers is a determinant of the abundant supply of a product in
the market.
6. PRICE OF RELATED PRODUCTS.
7. EXPECTATION AND SPECULATION

EQUILIBRIUM
Equilibrium is a market condition where quantity
supplied equals quantity demanded.
Equilibrium price the price level that both buyers
and sellers agree to have a transaction in the market.
Qd = Qs
Equilibrium quantity quantity of products that
buyers and sellers agreed to transact at a specified
price.
Qd = Qs
substitute the price in the demand and supply
function

POINT

PRICE

B
C

Qd

Qs

39
10

25

13

40

D
E
F
1.
2.
3.
4.

18
COMPUTE FOR THE EQUILIBRIUM PRICE
COMPUTE FOR THE EQUILIBRIUM QUANTITY
COMPLETE THE DEMAND AND SUPPLY SCHEDULE
PLOT IN A GRAPH

ROLE OF GOVERNMENT IN
PRICING

PRICE ACT
R.A. 7581 law mandating the
government to implement price
control on basic commodities.
NATIONAL PRICE COORDINATING
COUNCIL formed by the Price Act to
guard and monitor the prices after
the announcement of a price ceiling.

PRICE CEILING
Refers to the highest or maximum
price declared by the government for
a particular product. It is the selling
price of the product approved by the
government.
PRICE CONTROL implemented if a
state of calamity is declared.
The price declared is lower than the
equilibrium price in the market.

FLOOR PRICE
Refers to the lowest price or
minimum price declared by the
government for a particular product.
PRICE SUPPORT implemented to
help producers recover their
production cost and to gain some
profit.
Price support is higher than the
equilibrium price in the market.