MARKET EQUILIBRIUM

IMELDA B. CUETO
.
SBMA
LETRAN CALAMBA
EQUILIBRIUM
Means state of balance
In the market, equilibrium is attained where demand
is equal to supply
competitive equilibrium – point of intersection
between demand and supply curves
Involves equilibrium price and equilibrium
quantity
EQUILIBRIUM PRICE AND
QUANTITY
In the market for goods and services, either of these
scenarios may happen:

1. Shortage - There is excess demand (Qd > Qs)

2. Surplus – There is excess supply (Qd < Qs)
3. Equilibrium – There is neither excess supply nor
excess demand ( Qd = Qs)
 S

Price (in pesos)

25

Shortage
D

15 20 Quantity

AT 25 PESOS PER PIECE, SELLERS WILL SUPPLY 15

PIECES OF NOTEBOOKS BUT BUYERS WANT TO
BUY 20 PIECES.
Since there is shortage, buyers bid up the price, moving up along the
demand curve, and also buying less each time because of the increasing
price. Likewise, because of the rising price, sellers are willing to sell more
of the good. These two actions help erase the excess demand.
 S

35

Price (in pesos) Surplus

D

5 25 Quantity
AT THE PRICE OF 35 PER PIECE OF NOTEBOOK,
BUYERS ARE WILLING TO BUY 5 PIECES BUT FIRMS
ARE OFFERING 25 PIECES.
Thus, buyers will offer to buy more at a lower price while
sellers are willing to lower the price to sell more of pieces.
This adjustment process will eliminate the surplus.
 S

Price (in pesos) 30

Equilibrium
D

10 Quantity
AT PHP 30, THE QUANTITY THAT CONSUMERS ARE
WILLING TO BUY MATCHES THE QUANTITY THAT SELLERS
ARE WILLING TO OFFER, Q = 10.

The market clears and is stable. There is no tendency for price to fall or
increase. When left to itself, the market adjustment process will give
us the market equilibrium price (P*) and equilibrium quantity (Q*).
The market adjustment process may be depicted
in using a schedule or table.
Price (pesos) Quantity Quantity
Supplied Demanded
20 0 25
25 5 20
30 10 10
35 25 5
40 30 1
Demand: Qd = 20 – 0.4P
To get the equilibrium
Supply: Qs = -10 + 0.6P quantity, substitute the
computed price to demand or
supply equation.
Find the equilibrium price:
Qd = 20 – 0.4P
Qd = Qs = 20 – 0.4 (30)
20 – 0.4P = -10 + 0.6P =8
20 + 10 = 0.6P + 0.4P
30 = 1P Qs = -10 + 0.6P
30 = P = -10 + 0.6(30)
=8
MARKET EQUILIBRIUM IN
MATHEMATICAL LANGUAGE
Quiz:
FIND THE EQUILIBRIUM PRICE AND
QUANTITY. SHOW COMPUTATIONS:
1. QD = 18 – 0.02P AND QS = 3 + 0.03P
2. QD = 420 – 6P AND QS = -60 + 9P
3. QD = 390 – 0.40P AND QS = - 100 + 0.40P