MARKET EQUILIBRIUM

Computing for Equilibrium Point Using Algebraic Equations

To solve for the equilibrium price using mathematical equations, consider the given
demand function and supply function:

Demand Function: P = a – mdQd

Supply Function: P = a + msQs

Where: Qd is quantity demanded, Qs is the quantity supplied, P is the price.

Demand Function: P = a – mdQd

-md is the slope of the demand curve,
a is the intercept if Qd is zero.
(“a” has value if there is 0 quantity demanded)

Supply Function: P = a + msQs

ms is the slope of the supply curve,
a is the intercept if Qs is zero.
(“a” has value if there is 0 quantity supplied)

From the data in Table 9, Table 15, and Figure 31, we can solve for the slope of the
demand and supply curves.

Determining the Equilibrium Point

STEP 1: Solve for the Slope of Demand

• Use point A as initial and point B as final

P1 = Q1 =
P2 = Q2 =

Slope of Demand = P2 − P1
Q2 − Q1

STEP 2: Solve for the Slope of Supply

• Use point F as initial and point G as

final
P1 = Q1 =
P2 = Q2 =

Slope of Supply = P2 − P1
Q2 − Q1

STEP 3: Substitute the values of slope of demand and supply to the demand and
supply function

Demand Function: P = a – mdQd Supply Function: P = a + msQs

STEP 4: Solve for the equilibrium quantity

Formula to solve for equilibrium quantity: demand function = supply function or

a-mdQd = a+msQs

STEP 5: Solve for equilibrium price

To solve for price, you can either use the demand function and the supply function

Demand function: P = 80 – 0.2Q ; Supply function: P = 0.2Q

Analyzing Equilibrium Changes (Determining Prices and Quantities)

Equilibrium Price it refers to a price level where consumers are willing to purchase
products and services and producers (or sellers) are willing to supply goods and services
in the market.

In analyzing equilibrium changes we shall assume the following scenarios:

• An increase in Supply while Demand remains unchanged.
• A decrease in Supply while Demand remains unchanged.
• An increase in Demand while Supply remains unchanged.
• A decrease in Demand while Supply remains unchanged
• Both Demand and Supply increased
• Both Demand and Supply decreased
• An increase in Supply while Demand decreased.
• A decrease in Supply while Demand increased.
Analyzing Equilibrium Changes (Determining Prices and Quantities)

Figure 23 shows an increase in Supply while Demand remains unchanged. Supposed that
there is an increase in the sellers of mangoes during summer, what happens to market
equilibrium

To analyze the figure, let us follow four simple steps:

1. Illustrate the basic diagram of supply and demand and label the initial equilibrium
Point A

2. Determine whether the demand or supply shifts (or both) and if the shift/s is/are to the
right or left

3. Label the new equilibrium Point B (or C in multiple shifts).

4. Determine the effect/s of such shift/s on price and quantity.

An increase in the number of sellers shifts the supply curve to the right. From Point A
where the initial equilibrium is at P1 = 50 and Q1 = 500 to point B where the
new equilibrium is at P2 = 20 and Q2 = 700. An increase in supply while demand
remains constant results in a decrease in the price of mangoes from 50 to 20 and an
increase in its quantity from 500 to 700.

Analyzing Equilibrium Changes (Determining Prices and Quantities)

Figure 24 shows a decrease in Supply while Demand remains unchanged. Supposed the
cost of wheat increased, what happens to the price and quantity of bread if demand
remains constant?

An increase in the cost of production in making bread will shift the supply curve to the
left. From Point A where initial equilibrium is at P1 = 70 and Q1 = 500, to point B where
the new equilibrium is P2 = 90 and Q2 = 30. A decrease in supply while demand remains
constant results in an increase in the price of bread from 70 to 90 and a decrease in its
quantity from 500 to 300

Analyzing Equilibrium Changes (Determining Prices and Quantities)

Figure 25 shows an increase in Demand while Supply remains unchanged. Suppose the
average income increased, what happens to the price and quantity of smart phones if
supply remains constant?

An increase in income will shift the demand curve to the right. From Point A where
initial equilibrium is at P1 = 10,000 and Q1 = 1,000, to point B where the new
equilibrium is P2 = 12,000 and Q2 = 1,100. An increase in demand while supply remains
constant results in an increase in the price of smart phones from 10,000 to 12,000 and an
increase in its quantity from 1,000 to 1,100

Analyzing Equilibrium Changes (Determining Prices and Quantities)

Figure 26 shows a decrease in Demand while Supply remains unchanged. Suppose the
taste and preference for Christmas decorations declined, what happens to the price and
quantity of Christmas lanterns if supply remains constant?

A decline in taste and preference will shift the demand curve to the left. From Point A
where initial equilibrium is at P1 = 1,500 and Q1 = 500, to point B where the new
equilibrium is P2 = 800 and Q2 = 100. A decrease in demand while supply remains
constant result in a decrease in the price of lanterns from 1,500 to 800 and a decrease in
its quantity from 500 to 100

Analyzing Equilibrium Changes (Determining Prices and Quantities)

Figure 27 shows an increase in Supply and Demand. Suppose taste and preference for
domestic flights increased while the cost of jet fuel rolled back, what happens to the price
and quantity?

A simultaneous increase in Supply due to a price rollback in fuel, and an increase in

Demand due to an increase in income will result in a shift of demand and supply to the
right. An increase in supply will initially decrease price from P1 = 1,500 to P2 = 1,000
and an increase in quantity from Q1 = 400 Q2 = 500. An increase in demand will bring
the priceto P2 = 1,000 to P1 = 1,500 though it further increase quantity from Q2 = 500 to
Q2 = 600
Analyzing Equilibrium Changes (Determining Prices and Quantities)

Figure 28 shows decrease in Supply and Demand. Suppose taste and preference for
“Pugon Pandesal” decreased while the cost of producing it increased, what happens to the
price and quantity?

A simultaneous decrease in Supply of bread due to an increase in cost, and a decrease in

Demand due to a decrease in taste and preferences will result in a shift of demand and
supply to the left. A decrease in demand will initially decrease price from P1 = 5 to P2 =
3 and quantity from Q1 = 500 to Q2 = 400. An increase in cost of production will bring
the price from P2 = 3 back to P1 = 5 and further reduce quantity from Q2 = 500 to Q2 =
600

Analyzing Equilibrium Changes (Determining Prices and Quantities)

Figure 29 shows decrease in Supply and an increase in Demand. Suppose taste and
preference for grapes increased while the cost of producing it increased, what happens to
the price and quantity?

A decrease in Supply of grapes due to an increase in cost and will shift the supply to the
left while an increase in demand due to an increase in taste and preference will shift the
demand curve to the right. A decrease in supply will initially increase price from P1 =
250 to P2 = 300 and a decrease in quantity from Q1 = 100 to Q2 = 50. An increase in
demand will further increase price from P2 = 300 back to P3 = 400 but quantity will go
back from Q2 = 50 to Q1 = 100
Analyzing Equilibrium Changes (Determining Prices and Quantities)

Figure 30 shows an increase in Supply and a decrease in Demand. Suppose taste and
preference for pork decreased while the cost of producing it decreased, what happens to
the price and quantity?

An increase in Supply due to a decrease in cost shifts the supply curve to the right while a
decrease in demand due to a decline in taste and preference shifts the demand curve to
the left. An increase in supply will initially decrease price from P1 = 200 to P2 = 150 and
increase quantity from Q1 = 100 to Q2 = 300. A decrease demand will further decrease
price from P2 = 150 back to P3 = 100 and will bring back the quantity from Q2 = 300 to
Q1 = 200

CONTEMPORARY ISSUES FACING THE

FILIPINO ENTREPRENEUR

Contemporary Issues Facing the Filipino Entrepreneur

One of the challenges that entrepreneurs face is the opportunity cost of investing in
different portfolios and interest rates that go with them.

Investment includes things that one buys for future use, with the expectation that its value
will increase.

Investments

• An investment is a product that people buy with the hope that they will be beneficial or
will generate income in the future

Classification of investment: long-term investments & Short-term investments

Long-term investments one of the usual long-term investments is buying a property or

engaging in real estate. The process is: buy any property then wait for the value to
increase as years go by then sell it.

Short-term investments bank offers a variety of short-term investments – savings and

time deposits are the usual venues for these types. Security risk is low, gain is also low,
and interest rates are fixed. The only problem is that the opportunity cost is high.

• Other financial intermediaries usually offer other types of investments like stocks and
bonds.

Stocks - are issued (sold) by corporations to generate funds for their operations.
Stocks represents a fraction of ownership of the corporation. Stocks are equity security.
Bonds - are issued by firms and sold to investors to generate funds for their operations.
Investors who bought bonds are lending money to firms. And firms will eventually return
a series of interest payments. Bonds are debt security – it can be traded in the financial
market.

• The Philippine Stock Exchange is a place where traders buy and sell stocks for profit.
Ideally, a broker buys stocks and sell them at a higher price later. Although it may sound
simple, there are many things that may complicate the profit objective. There are losers
and gainers from trading. You can’t win them all.

Take note:
• In stocks, you are a part owner of the corporation until you sell your shares.
• In bonds, you are a temporary lender until the firm pays its debt.

Rentals

• In any kind of market structure, the first few months of operation usually find the
business experiencing losses due to fixed costs which include rent, machinery, and
equipment.

• Theoretically, as a business continues to operate efficiently, both variable and fixed

costs are distributed among the output is exactly at the point where cost is at its lowest. If
the business does not expand, there will become a time when the business will experience
increasing costs because of the effect of the Law of Diminishing Marginal Returns.

• In case of expansion, the business will incur profits. But it needs to consider initial
capitalization, cost of expanding, and vulnerability of the market before you really
venture in such project.

Minimum Wage

• Increasing cost of businesses is brought about by increasing wages. In the Philippine

setting, each region has its own minimum wage determined by the standard of living of
its residents. The Government tries to increase minimum wage.

• The objective of increasing minimum wage is to improve the lives of ordinary

households. But it brings about unemployment. Setting a minimum wage will result in a
surplus of laborers

Taxes

Tax is also a significant issue facing the entrepreneur. Taxes are considered inflow for the
governments and outflows for firms. Business apply either a percentage tax on gross
receipts (3%) or value added (12%). This is burden for the business. Any tax for that
matter is a burden.

Business taxes should be paid every month while income tax from business is paid
quarterly. This is around 30% if gross receipts reached 500,00 annually or around 40,000
– 50,000/monthly gross sales.

Tax avoidance – LEGAL where the firm is using the law to gain favor (example: Tax
havens of multinational corporation through shell corporations)

Tax evasion – ILLEGAL

Covid – 19 Pandemic

• Pandemic means most countries are affected by a certain disease

• COVID -19 is caused by infection with the severe acute respiratory syndrome
coronavirus 2 (SARS-COV-2) virus strain (from en.wikipedia.org)
• Due to COVID-19, businesses are forced to shutdown, rescaled the number of
employees on work, and/or change their business operation

• A lot of filipino workers working in the locality and even from abroad were
retrenched/unemployed

Problems Under Different Market Structures

What is a Market Structure?

Market Structures
- are different compositions of sellers and distinguishing quality of goods.

Which Market Structure?

In order to analyze and identify the market structure, we are going to observe the
following:
1. Number of Sellers
2. Types of Products

4 Market Structures:
• Pure Competition
• Monopoly
• Oligopoly
• Monopolistic Competition

Pure Competition

• A market structure where there are many buyers and sellers.

• No firm can cause changes in prices and quantities on goods and services because the
products being sold are homogeneous.

Usual Problem:
• Getting a fair market share. In order to be competitive, one must adjust the size of
his/her business to achieve the most efficient plant size. This is attained by adding more
labor inputs until the best combination and labor and capital is experienced.

Monopoly

• A market structure where there is one seller that represents the whole industry.

• Monopolist is a “price maker”.

• In a monopoly, there is only one good or service with no close substitutes hence,
consumers have no choice but to patronize that one product or service.

Usual Problem:
• The usual problem that a monopolist faces is the improvement of its product or service.
This problem occurs because the monopolist lacks the foresight to become efficient due
to the absence of competition.

Oligopoly

• A market structure where there are few sellers and many buyers.

• The products can be homogeneous or differentiated but it is difficult and (or) expensive
to produce
• Competitors in this kind of structure collude and are called “players”. Either they play
as one team or play in different teams. There are few sellers that prefer to make alliances
than to compete.

Usual Problem:
• The existence of barriers to entry where a competitor finds it hard to enter in the
industry because of the initial capital requirement. The tasks for the players to enter the
industry is extremely difficult.

Other types of Oligopoly

• There are several types of oligopoly:

• players are the same or there are no disparities between them,
• a player dominates among several players, and
• there are only two players in the market (duopoly)

• Competitors in this kind of structure collude and are called “players”. Either they play
as one team or play in different teams. There are few sellers that prefer to make alliances
than to compete.

• In duopoly, where there are 2 sellers, it is best if they work together rather than
compete; or they just work together and pretend they are competing.

Monopolistic Competition

• A market structure consists of different product with many sellers and buyers.

• Products in the industry seem to be identical, but they are not – differentiated products.

• The products in the industry have different target markets even if it has the same
purpose.

• In this market structure, “consumer’s loyalty” is experienced by the seller, when certain
consumers prefer their brand over others. Hence, branding in this market influences
consumers’ taste and preference.

Usual Problem:
• Monopolistic competitors problem is how to be unique and different from its
competitors. Being unique is not only through advertisements; it must also yield
customers, and this will be the basis of your market share. Otherwise, the business will
belong to pure competition where one cannot dictate a price and have no distinguishing
quality that will set you above