INSTITUTE OF EDUCATION, ARTS & SCIENCES

SSS 106
Microeconomics
 Institutional Prayer
All:
Lord, we turn our life and will over to You
That we will cease to struggle alone
But instead allow You to lift us up
On eagle’s wings.
Leader:
Saint Michael, defender of the Church of God,
take us under your care and protection.
All:
This we humbly pray.
Amen
INTENDED LEARNING OUTCOMES:

Enumerate and explain the nonprice determinants if

demand and supply;

Explain clearly the operation of the Laws of Demand

and Supply;
INTENDED LEARNING OUTCOMES:

Differentiate between change in demand and change in

quantity demanded; and

Explain the concept of elasticity, and the meaning and

economic significance of Ceteris Paribus.
DEMAND,SUPPLY AND MARKET EQUILIBRIUM
 SUPPLY
COURSE DESCRIPTION
Supply is the schedule of various quantities of goods and
services which sellers are willing and able to sell at a
given price, time and place, all other factors are held
constant (ceteris paribus).
The law of supply states that as price increases, the
quantity supplied also increases, and as the price
decreases, the quantity supplied decreases, ceteris
paribus.
Some factors affecting supply:
1. Price of the product
2. Cost of production
3. Availability of raw materials
4. Technology
5. Number of sellers
6. Price expectation
Some factors affecting supply:
7. Taxes and subsidies
8. Prices of other products
A supply schedule is a listing of the different quantities of
goods and services that sellers will sell given the various
alternatives.
 Example:
Table 1. Supply Schedule for Commodity X
Price of X () Quantity supplied for commodity X ()
10 1
20 2
30 3
40 4
50 5
60 6
70 7
80 8
A supply curve is a plotted demand schedule as in
Figure 7.
A supply function is expressed in this form:
=f ()

Where: -quantity supplied for commodity X

-price of commodity X
While a supply equation is presented as follows:
=a-b

Where: a- intercept

b-slope (the formula:

Example:
Interpretation of the intercept and the slope

a=-10 The intercept means that if the price of commodity

X is zero, the seller will sell -10 units of the commodity. A
negative quantity is nothing. This only emphasizes that if there
is no price, the seller will sell nothing.
b=0.6 The slope means that for every one unit change in
the price of X, the quantity supplied will change by 0.6
unit.

The positive sign indicates a positive relationship between

the price and the quantity supplied.
Calculate the quantity supplied assuming the following prices:

1. P=20 2. P=30 3. P=40

Price (P) Quantity supplied (Qs)
20 2
30 8
40 14
Plot the supply curve.
Movement Along a Given Supply Curve versus a Change
in Supply

A movement along a given supply curve is the change in

the quantity supplied due to the changes in the price of the
product when all other factors are held constant.
 Price

Supply
𝑃2 B

𝑃1
A

Quantity
𝑄1 𝑄2

Movement along the Supply Curve

 Price

Supply
𝑃2 B

𝑃1
A

Quantity
𝑄1 𝑄2

Movement along the Supply Curve

A change in the supply refers to the shift in the entire
supply schedule due to the changes in some factors that
were held constant like the cost of production, availability
of raw materials, price expectation and others.
 Supply Schedule
Price
10 4 2
12 8 4
14 12 6
16 16 8
18 20 10
20 24 12
22 28 14
24 32 16
MARKET EQUILIBRIUM
The condition when quantity demanded is equal to
quantity supplied is said to be market equilibrium.
Quantity Demanded=Quantity Supplied

Price

Supply

Equilibrium Price

Demand

Quantity
Equilibrium Quantity

Market Equilibrium
When there is no equilibrium, there is no balance
between the demand and supply. Shortage is a
condition when the quantity demanded exceeds the
quantity supplied. This happens when the price gets
lower than the equilibrium price.
Surplus is a condition when the quantity supplied is
greater than the quantity demanded. This occurs when
the price is above the equilibrium price.
 Demand and Supply Schedule
Price of X () Quantity demanded for Quantity supplied for commodity
commodity X () X ()
10 9 1
20 8 2
30 7 3
40 6 4
50 5 5
60 4 6
70 3 7
80 2 8
 Market Equilibrium in Mathematical Language

Assume the previous demand and supply equations:

Demand:

Supply:
Market Equilibrium in Mathematical Language

Find the equilibrium price and quantity.

=
=
-=
/-1= /-1
=
 Market Equilibrium in Mathematical Language

The equilibrium quantity can be obtained using either

the demand or supply equations.