MODULE 7 :

INTERACTION OF
DEMAND AND SUPPLY
Prepared By: Mr. Menard Sobron
AP9 Teacher
 OBJECTIVES
Explain the interaction of demand and supply in the market.
Analyze the importance of market equilibrium for the end
of consumers and producers to avoid shortage or surplus.
Create a graphical representation of the combined demand
and supply schedule.
MARKET

A Market is a meeting
place for buyers and sellers
where the buyer can
purchase goods from the
seller for a price that is
agreeable to both. In
economics, the "market" is
not limited to a physical
location but also includes a
contemporary, online
platform that is typical of the
financial market.
EQUILIBRIUM
Equilibrium a state of a
balance and comes from the
Latin words aeguus, which
means “equal” and libra which
means “balance”.
EQUILIBRIUM
For an exchange of goods to happen,
the buyer and seller must agree on the
price. This price is referred to as the
market price. The point where
consumer and supplier expectations
meet is known as the market
equilibrium.
MARKET EQUILIBRIUM

Market equilibrium is this situation where

at a given price quantity demanded and
quantity supplied are equal. That is why it
may be defined as a form of organized
contact between the buyers and sellers
using an acceptable means of exchange.
MARKET EQUILIBRIUM
 When the demand curve and supply
curve are combined in a graph, the
market equilibrium is the point at
which the two intersect. This is the
point where the price would be paid
by the consumer price corresponds to
where the producer wants to sell his
goods. It is also the point where the
quantity the consumer wants to buy
and the quantity the producer wants
to sell.
In the table below, we can see that
equilibrium is the point where the
price of clothing is 500 and quantity is
16000. 500 is the equilibrium price and
16000 is the equilibrium quantity.
Table 7:1: Demand Schedule for cloth
Table 7:2: Supply Schedule for cloth
If the market is not in equilibrium, there
may be a shortage or surplus. There was a
shortage if the quantity demanded was
higher than the quantity supplied at a
particular price. there is a surplus if the
quantity supplied is higher than the
quantity demanded at a particular price.
Shortage, or excess demand

Occurs when the quantity demanded is

greater than the quantity supplied.
This means that at the current price
consumers are willing to buy more of
goods and services than what is
currently available in the market.
Surplus or excess supply

In contrast, surplus means excess

supply. In short, surplus is the result of
the higher quantity supplied relative to
the quantity demanded at the current
price. In other words, producers are
selling more than what consumers are
willing to buy.
Shift In Market Equilibrium
Whenever there is a shift in either the
demand curve or supply curve, the market
equilibrium adjusts accordingly. This
means that the determinants that caused
the demand curve or supply curve to shift
also caused the market equilibrium to
shift.
Strategies To Address Shortage and Surplus:
Price regulation
The government through price mechanism policies can influence
consumer and producer behavior. One example of such policies is
the release of suggested retail prices (SRP) Foremost consumer
products in the market. The SRP's serve as a guide for consumers
and sellers and aim to address the issue of information disparity in
the market. In the case of some household items, SRP's may even
be advertised on the product packaging so consumers can gauge
whether they are paying too much for a good. The Department of
Trade and Industry (DTI) recently released e-Presyo, an online
application that allows consumers to check the SRP's of basic
commodities sold in the market.
Strategies To Address Shortage and Surplus:
Legislation Or Government Regulations
Another strategy of the government to regulate the market is legislation
or government regulations. Legislation refers to the government
mandates or sanctions that it can enforce on certain goods. This helps in
cases where drastic action is required to force consumers to obey.
Examples include a ban on certain products. This is typical in the case of
goods that do not pass quality checks and especially in the case of
medicines and food. The Food and Drug administration (FDA) is the
government agency that monitors and grants licenses to Food and Drug
related business applications. It requires strict licensing and thorough
testing requirements. The FDA releases regular advisories on unregistered
and untested products that are sold in the market in order to warn
consumers.
Strategies To Address Shortage and Surplus:
Forecasting And Monitoring
In most cases, information about the level of demand and available
supply is not received. To address this information gap, the
government monitors and forecasts the levels of supply of certain
goods. One example is the case of the rice which is a staple in the
Filipino diet. While the Philippines may be a major producer of rice,
the frequency of typhoons that visit the country makes rice yields
quite volatile. This is the same for other agricultural products. The
government, through the National Food Authority (NFA), monitors
the supply of rice to ensure that there is enough rice even in times of
calamities. It may import from other rice producing countries to
maintain its rice inventory at a certain level.
THANK YOU FOR LISTENING!
WHAT FACTORS CONTRIBUTE TO THE ESTABLISHMENT
OF EQUILIBRIUM IN A MARKET, AND HOW DOES THE
INTERPLAY BETWEEN DEMAND AND SUPPLY
DETERMINE THE OPTIMAL PRICE AND QUANTITY?