NAME: SINGSON, ANNA MARIE DATE:

A. Fill the blanks with the correct word or group of words that describe the sentence.

1. In a competitive market system, consumers are assumed to buy in quantities that maximize their
SATISFACTION, and producers are assumed to produce in quantities that maximize their PROFIT.
2. DEMAND is a curve or schedule that relates the various quantities of an item that a buyer is willing to
purchase to various prices, ceteris paribus.
3. Along a demand curve, only PRICE and quantity DEMANDED vary.
4. When demand curves are plotted on a graph,QUANTITY DEMANDED is always located along the x-
axis and PRICE is always located along the y-axis.
5. The law of demand states that price and quantity demanded are INVERSELY.
6. The supply is a curve or schedule that relates the various quantities that vendors are seeking to sell at
alternative PRICE , ceteris paribus.
7. An increase in the number of producers in a market will cause the supply curve in that market to shift TO
THE RIGHT, cet. paribus.
8. The relationship between price and quantity supplied is DIRECTLY PROPORTIONAL.
9. Increases in supply lead to INCREASE IN prices
and INCREASE IN quantities exchanged, cet. paribus.
10. A movement along the demand curve is called CHANGE IN QUANTITY DEMANDED and the
movement of the entire curve is called CHANGE IN DEMAND.

B. Problem Solving

1. Illustrate graphically the effect on price and quantity of each of the following:
a) Demand increase with supply constant

S1
P2
P1

D2

D1

Q1 Q2 Q
b) Supply increase with demand constant

P
S1
S2

P1
P2

D1
Q1 Q2 Q

c) Supply increase with demand increase

S1
S2
P2
P1

D2
D1
Q1 Q2 Q
 2. Suppose the following functions of a commodity is given as:
Demand function = 12-2(P)
Supply Function = 2(P)
Price Range: PI to P6
a) Determine the market demand and supply schedules of the commodity.

Market demand and supply schedules of the commodity

PRICE DEMAND SCHEDULE SUPPLY SCHEDULE

P 1 10 2

2 8 4

3 6 6

4 4 8

5 2 10

6 0 12
 b) Plot the demand and supply curves in a single graph.

c) Identify the equilibrium price and quantity.

AMOUNT OF
SURPLUS/ EFFECT ON THE
DEMAND SUPPLY SURPLUS/
PRICE SCHEDULE SCHEDULE SHORTAGE SHORTAGE PRICE LEVEL

P 1 10 2 (8) Shortage Increase

2 8 4 (4) Shortage Increase

Market Equilibrium
3 6 6 0 Balance price

4 4 8 4 Surplus Decrease

5 2 10 8 Surplus Decrease

6 0 12 12 Surplus Decrease

d) Compute mathematical market equilibrium point.

MARKET EQUILIBRIUM POINT
 FORMULA:
D=S
QD = 12 - 2P
QS= 2P
SOLUTION:
12-2P =2P
-2P-2P = -12
-4P ÷ -4 = -12 ÷ -4
Pe= 3

QD = 12- 2P
QS = 2P
12-2 (Pe3)= 2 (Pe3)
12-6= 6
6=6
Qe= 6

3. In a competitive economy, assume that demand and supply for shoes is given as:

Demand Supply

Total Sales Qty. (Pairs) Total Sales Qty. (Pairs)

P 540 10 P 270 15

480 20 370 25

350 45 470 35

a) Plot the demand and supply schedule.

b) What is the equilibrium price and quantity?

 The equilibrium price of shoes is P430.00 and the quantity is 31 pairs of shoes.
c) What is the price per pair of shoes?
To get the price per pair of shoes:
TOTAL SALES / QUANTITY PRICE
P430 ÷ 31 = 13.87 or 14
P13.87 or P14.00 is the price per pair of shoes.
d) How are you going to describe a market that is in state of equilibrium?

C. Problem Solving:
A. Plot the following table in a single graph

AMOUNT OF SHORTAGE/ PRESSURE ON

PRICE QS QD SURPLUS PRICE

P5 100 300

10 130 200

15 180 180

20 200 120

25 250 75

30 270 50

B. Indicate if there is surplus or shortage of the good, the amount of the surplus and shortage, and
the effect on the price of such surplus or shortage. Put your answers on the table.
 AMOUNT OF
SURPLUS/ EFFECT ON THE
SUPPLY DEMAND SURPLUS/
PRICE SCHEDULE SCHEDULE SHORTAGE SHORTAGE PRICE LEVEL

P5 100 300 (200) Shortage Increase

10 130 200 (70) Shortage Increase

Market Equilibrium
15 180 180 0 Balance price

20 200 120 80 Surplus Decrease

25 250 75 175 Surplus Decrease

30 270 50 220 Surplus Decrease

C. Identify the equilibrium price and quantity. Label your graph properly