Market Equilibrium

LESSON 2.2
The Philippines is an
agricultural country.
Rice is the most
important staple crop of
the country.

2
However, the country is
experiencing rice
shortage and thus,
began importing rice
from neighboring
countries.

3
Why does the Philippines
experience rice
shortage? How can the
country solve its rice
shortage issues?

4
Explain how equilibrium price and quantity are
determined (ABM_AE12-le-h-4).

5
● Explain market equilibrium.
● Apply the law of demand and supply to
illustrate how equilibrium price and quantity
are determined.

6
Rice Exchange

The class will be divided into two groups and

simulate a rice trading transaction for three
minutes.

Group 1 Group 1
Rice Seller Group Rice Buyer Group

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Rice Exchange
Round 1

seller sells above the

minimum selling price

Group 1 Group 1
Rice Seller Group Rice Buyer Group

buyer buys below the

maximum selling price

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 Price of Rice
Round 1

9
Rice Exchange
Round 2

seller sells above the

minimum selling price

Group 1 Group 1
Rice Seller Group* Rice Buyer Group*

buyer buys below the

maximum selling price

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 Price of Rice
Round 1 Round 2

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Rice Exchange
Round 3

seller sells above the

minimum selling price
Group 1
Group 1
Rice Seller
Rice Buyer Group*
Group*
buyer buys below the
maximum selling price

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 Price of Rice
Round 1 Round 2 Round 3

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Rice Exchange
Round 4

seller sells above the

minimum selling price
Group 1
Group 1
Rice Buyer
Rice Seller Group*
Group*
buyer buys below the
maximum selling price

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 Price of Rice
Round 1 Round 2 Round 3 Round 4

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In which conditions did the buyer save money?
In which conditions did the seller save money?

16
Do you see any trend in the prices of rice in round one?
After round two? What do you think will happen if we
continue the activity over and over again?

17
What happened to the price of rice in round
three? Why do you think the price of rice
changed that way?

18
What happened to the price of rice in round four?
Why do you think the price of rice changed that way?

19
Under what conditions will there be changes in the
price of goods and services? How do demand and
supply affect the price and quantity of goods and
services?

20
What happens to the market when the supply
or demand changes?

21
Market Equilibrium

state of balance when

quantity demanded (qd)
is equal to the quantity
supplied (qs)
qd qs
qd = qs
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 Market Equilibrium

● Equilibrium quantity is
the quantity demanded
and quantity supplied at
equilibrium (qd = qs).
● Equilibrium price (also qd qs
marketing clearing
price) is the price where
qd = qs.
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 Market Equilibrium

I would like to buy your Okay! I could sell my 50

50 cavans of rice at cavans of rice at ₱720 per
₱720 per cavan. cavan.

rice seller
rice buyer
24
Recall: Demand and Supply Curves

Demand curve
As the price of goods
and services increases,
the quantity demanded
decreases.

25
Recall: Demand and Supply Curves

Supply curve
As the price of goods and
services increases, the
quantity supplied also
increases.

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Market Equilibrium
Market equilibrium exists at the point where
demand and supply curves intersect.

Market equilibrium

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Market Disequilibrium

state of imbalance
where quantity
demanded (qd) is equal
qs
to the quantity supplied qd
(qs)

q d ≠ qs
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 Market Disequilibrium
Shortage

● excess demand in the

market
● quantity demanded qd
greater than quantity qs
supplied

q d > qs
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 Market Disequilibrium
Shortage

price falls below equilibrium

price

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 Market Disequilibrium
Example of Shortage
Demand for face masks and
its raw materials increased
as it became an essential
product due to the COVID-
19 pandemic. Hence,
shortage of face mask
occurred in the market.

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 Market Disequilibrium
Factors Affecting Shortage

1. increase in demand for goods and services

2. decrease in supply of goods and services
3. government interventions such as imposing
price ceilings

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Market Disequilibrium
Surplus

● excess supply in the

market
● quantity supplied qs
greater than quantity qd
supplied

qd < q s
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 Market Disequilibrium
Surplus

price is shown above

equilibrium price

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 Market Disequilibrium
Example of Surplus

In 2019, the Philippine

market experienced a
surplus of two million
kilograms of mangoes. At
the time, the country
produced an excess supply
of mangoes due to El Niño.

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 Market Disequilibrium
Factors Affecting Surplus

1. increase in supply of goods and services

2. decrease in demand for goods and services
3. government interventions such as imposing
price floor

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 Determining Market Equilibrium
Using Demand and Supply Curve

Step 1:
Combine the demand and
supply curves into one
graph. If the demand and
supply curves are already
combined in one graph,
move to the next step.

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 Determining Market Equilibrium
Using Demand and Supply Curve

Step 2:
Identify the intersection to
determine market
equilibrium and
equilibrium price. The point
where supply curve and
demand curve intersect is
the equilibrium price.
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During disaster relief operations, charitable
organizations conducting relief operations usually
provide instant noodles as part of its relief packages
to displaced residents in evacuation centers. Families
outside of evacuation centers also buy instant noodles
since it is easy to cook.

39
Thus, when you go out to buy instant noodles in the
grocery, you might see empty shelves in the instant
noodles aisle. On the next slide are the demand and
supply curves for instant noodles when Taal volcano
erupted in January 2020.

40
Using the graph, identify the market equilibrium and the
marketing clearing price where market equilibrium is
achieved.
41
The market for instant noodles is in equilibrium at 20
instant noodles (quantity) and ₱8 per instant noodles
(price). Equilibrium price is ₱8 per pack of instant
noodles.

42
Many consumers are shifting towards online shopping.
Online shopping sites regularly hold sales and offer big
discounts and free shipping on repeating dates such as
6.6 on June 6, 7.7 on July 7, and so on.

43
43
On a popular platform’s sale in November 2019, mobile
products such as smartphones and its accessories were
the most bought products. Based on its three-month
sales, the demand and supply curves for a certain
smartphone model are shown below.

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44
Identify the price and quantity where market
equilibrium is reached.
45
45
 Determining Market Equilibrium
Using Demand and Supply Schedule

Step 1: Compare the demand schedule and supply schedule.

Ideally, a table should be created to easily compare
the quantities against price.
Step 2: Identify the price at which quantity demanded under
the demand schedule is similar to the quantity
supplied under the supply schedule. This price and
quantity is where market equilibrium is achieved.
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The Philippines was one of the top milkfish producers in
the world in 2010 wherein 55% of the total milkfish
production came from the country.

47
Since demand in milkfish was growing globally, the
country also exported milkfish to the United States,
Canada, and Japan. However, in 2019, milkfish
production decreased due to fewer production of
milkfish aquaculture facilities.

48
Several factors contributed to this decline such as fewer
fishing operators interested in milkfish production and
the cold weather affecting milkfish reproduction.

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Shown on the next slide is the average price of milkfish
per kilo, based on the local consumers’ demands and
milkfish producers’ supply for 2019.

Identify the market equilibrium price, the quantity

demanded, and quantity supplied where market
equilibrium is reached.
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Average price of bangus Demand for bangus Supply of bangus
per kilo (in kilos) (in kilos)

₱120 1,200,000 875,000

₱125 1,100,000 900,000

₱130 1,000,000 925,000

₱135 950,000 950,000

₱140 900,000 975,000

₱145 850,000 1,000,000

₱150 800,000 1,050,000

₱155 750,000 1,100,000

₱160 700,000 1,150,000

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The market for bangus in 2019 is in equilibrium at
950,000 kilos of bangus (quantity) at ₱135 per kilo of
bangus (price). Equilibrium price is
₱135 per kilo of bangus.

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Seaweed is also a major aquaculture product of the
Philippines. About 50% of our aquaculture products
come from seaweed. Like the bangus industry, seaweed
production also declined from 6,928.13 metric tons in
2018 to 5,469.10 metric tons in 2019 due to ice-ice
disease in seaweeds and water pollution.

53
53
Shown on the next slide is the average price of seaweed
per kilo in a local market in Mindanao for a three-month
period.
Identify the equilibrium price and quantity when the
market for seaweed reached equilibrium.

54
54
Average price of seaweed Demand for seaweed Supply of seaweed
per kilo (in kilos) (in kilos)

₱4.00 100 40

₱4.50 90 50

₱5.00 80 60

₱5.50 70 70

₱6.00 60 80

₱7.00 50 900

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 Determining Market Equilibrium
Using Demand and Supply Functions

If demand and supply function in terms of qd and qs is

given:
Step 1: If the demand and supply functions are expressed
in terms of qd and qs, equate both expressions
since qd = qs.

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 Determining Market Equilibrium
Using Demand and Supply Functions

Step 2: Solve for price (P).

Step 3: Substitute the value of P to either demand or
supply function to obtain the equilibrium quantity.

57
 Determining Market Equilibrium
Using Demand and Supply Functions

If demand and supply function in terms of price (P) is

given:
Step 1: If the demand and supply functions are expressed
in terms of P, equate both expressions since at
equilibrium, price is the same for qd = qs.

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 Determining Market Equilibrium
Using Demand and Supply Functions

Step 2: Simplify qd and qs as q.

Step 3: Substitute the value of q to either demand or

supply function to obtain the equilibrium price (P).

59
In the 2017 readership survey conducted by the
National Book Development Board, 37% of Filipinos are
willing to spend ₱100 to ₱199 to buy a printed new
book. In that same year, the demand function for
printed new books is qd = 500 − 0.5P, while the supply
function for the same product is qs = 50 + 2P.

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Using the given demand and supply functions, solve for
the equilibrium price and the quantity at which the
demand for printed new books is equal to the supply.

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The equilibrium price for printed new books is
₱180 and the equilibrium quantity is 410 books.

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In the same 2017 readership survey, 36% of Filipino adults
read or buy storybooks for their children aged zero to five
years old. For a given week that year in a bookstore, the
demand function for storybooks is qd = 200 − 0.25P, while
the supply function is qs = 4 + 0.25P. Find the equilibrium
price and quantity for storybooks in a week for the given
bookstore.
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 Rearrange the letters to identify what is being described
below.

1. It is the quantity demanded and supplied at

equilibrium.

EIIIUMBLRQU
AUINQTTY
64
Rearrange the letters to identify what is being described
below.

2. It is the state of balance where the quantity

supplied that is equal to the quantity demanded.

AEMKRT
LUREUMBQIII
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Rearrange the letters to identify what is being described
below.

3. It is the price where both the price for the

quantity demanded is equal to the price for the
quantity supplied.

UEIMBIUILRQ
EICPR
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Rearrange the letters to identify what is being described
below.

4. It is a market condition where quantity

demanded is 09606908454 greater than the
quantity supplied.

AEOGHRST
67
Rearrange the letters to identify what is being described
below.

5. It is a market condition where there is an excess

supply.

LPRSSUU
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● Market equilibrium is a state of balance where the
quantity supplied (qs) that the sellers would like is
equal to the quantity demanded (qd) by the buyers at
a given price.

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● Equilibrium price (also called marketing clearing
price) is the price where both the price for the
quantity demanded is equal to the price for the
quantity supplied.

● The quantity demanded and quantity supplied at

equilibrium is also called equilibrium quantity.

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● Shortage happens when there is excess demand.
Price falls below the equilibrium price.

● Surplus happens when there is excess supply. Price

falls above the equilibrium price.

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The Philippines is the third-largest pharmaceutical
market in the ASEAN region. The pharmaceutical industry
is expected to grow by 4.5% annually from 2019–24.
Fourteen out of the 20 top pharmaceutical companies in
the world are in the Philippines.
In one pharmaceutical company, the annual demand for a
drug used to treat malaria is qd = 400 − 2P, while the
supply is qs = 5 + 0.5P.

Find the equilibrium price and quantity for that drug

annually.
Slide no. 3: Old age Harvest by Sharada Prasad CS is licensed under CC BY 2.0 via Flickr.

Slide no. 36: Mangos in Cebu Carbon Market.jpg by Naplee12 is licensed under CC BY-SA 3.0, CC BY-SA 2.5,
CC BY-SA 2.0, and CC BY-SA 1.0 via Wikimedia Commons.

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3G E-Learning LLC, USA. Applied Economics, 2nd Edition. New York: 3G E-Learning LLC, 2018.

Boyes, William and Melvin, Michael. Fundamentals of Economics, Fourth Edition. Massachusetts: Houghton Mifflin
Company, 2009.

Flynn, Sean Masaki. Economics for Dummies, 3rd Edition. New Jersey: John Wiley & Sons, Inc., 2018.

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