ACTIVITY 6:

INSTRUCTION: Read and analyze the problems. Give what is being asked. If the problem
requires for a solution, make your solutions neat and concise. Put your final answers in a
box. Write answers on a long bond paper (hand-written) and submit the same to your
subject teacher.

Given the data for the consumption and production of cotton, determine the equilibrium
point:

SUPPLY FOR COTTON

Price per kg. of cotton Quantity Demanded Quantity Supplied
₱ 50 50.25 85.75
₱ 30 55.50 75.25

a. Supply Function (3 points).

𝑄𝑆 = 𝑎 + 𝑏𝑃
𝑄𝑆 = 𝑎 + 0.525𝑃
𝑄𝑆 = 59.5 + 0.525𝑃

∆𝑄 𝑄2 −𝑄1 75.25−85.75
*𝑏= = = = 0.525
∆𝑃 𝑃2 −𝑃1 30−50

*𝑄𝑆 = 59.5 + 0.525𝑃

85.75 = 𝑎 + 0.525(50)
85.75 = 𝑎 + 26.25
85.75 − 26.25 = 𝑎
59.5 = 𝑎

b. Demand Function (3 points).

𝑄𝐷 = 𝑎 + 𝑏𝑃
𝑄𝐷 = 𝑎 − 0.2625𝑃
𝑄𝐷 = 63.375 − 0.2625𝑃

∆𝑄 𝑄2 −𝑄1 50.50−50.25
*𝑏 = = = = −0.2625
∆𝑃 𝑃2 −𝑃1 30−50

*𝑄𝐷 = 63.375 − 0.2625𝑃

50.25 = 𝑎 − 0.2625(50)
50.25 = 𝑎 − 13.125
50.25 + 13.125 = 𝑎
63.375 = 𝑎

c. Equilibrium point. (5 points)

63.375 − 0.2625𝑃 = 59.5 + 0.525𝑃
63.375 − 59.5 = 0.525𝑃 + 0.2625𝑃
3.875 0.7875𝑃
=
0.7875 0.7875
₱ 4.920634920634921 = 𝑃𝑒
 𝑄𝑠 = 59.5 + 0.525𝑃
𝑄𝑒 = 59.5 + 0.525(4.920634920634921)
𝑄𝑒 = 59.5 + 2.583333333333334
𝑄𝑒 = 62.08333333333333 𝑢𝑛𝑖𝑡𝑠

𝑀𝑒 = (62.08 ; 4.92)

d. Graph the Market Equilibrium. (5 points)

MARKET EQUILIBRIUM
Quantity Demanded Quantity Supplied

60
50
40
PRICE (₱)

30
20 Market
10
Equilibrium
(62.08 ; 4.92)
0
0 20 40 60 80 100
QUANTITY

e. Explain a graph where shortage may exist. Do not exceed 4 sentences. (5 points)
- Considering the graph above, all the prices below the price equilibrium are
considered as where the shortage exists. This indicates that the quantity
demanded is greater than the quantity supplied. The difference between the
quantity demanded and the quantity supplied is what we call the unsatisfied
demand or shortage. There is a shortage when buyers are willing and able to buy
goods that resulted into a high demand in which the sellers are not willing and
able to sell more quantity of goods because the price is low.

f. Explain a graph where surplus may exist. Do not exceed 4 sentences. (5 points)
- Considering the graph above, all the prices above the price equilibrium are
considered as where the surplus exists. This indicates that the quantity supplied is
greater than the quantity demanded. The difference between the quantity
supplied and the quantity demanded is what we call the surplus. There is a surplus
when sellers are willing and able to sell goods that resulted into a high supply in
which the buyers are not willing and able to buy more quantity of goods because
the price is high.