ECONOMICS REPORT

Good morning classmates, my report is about market equilibrium.

Market equilibrium is a market state where the supply in the market is equal to the demand in the
market. While the equilibrium price is the price of a good or service when the supply of it is equal to
the demand for it in the market. In other words, equilibrium price is the only price for that particular
good where all the supply is sold and all the demand is satisfied. If a market is at equilibrium, the price
will not change unless an external factor changes the supply or demand, which results in a disruption of
the equilibrium.
Let's take for example, the product Tide Powder with these set of hypothetical figures. We all know that
as price increases supply increases and inversely, as price increases, demand decreases. In this chart,
the equilibrium price or the price where demand is equal to supply is at P6 pesos.

If we graph this, supply slopes upward while demand slopes downward. The point in the graph were
the two slopes intersect which is at P6 pesos is the equilibrium price while 400 is the equilibrium
quantity.

Equilibrium price is also called the market clearing price because this is the price where everyone
who wishes to buy the good can buy the good and yet there is no left over where suppliers can't sell the
good. All the goods that are being supplied are sold, all the demand is satisfied. At this price the exact
quantity that producers take to market will be bought by consumers, and there will be nothing left
over. This is efficient because there is neither an excess of supply and wasted output, nor a shortage
the market clears efficiently.
In our example, if the product TIDE POWDER is sold at p6 pesos, suppliers will only want to sell a
total of 400 tide powder sachets and only 400 people will want to buy it. The entire supply of TIDE
POWDER is sold to 400 people without any excess on the part of the supplier or any customer left who
intends to buy a TIDE POWDER sachet.

However, this wouldn't be the case if the price is on another level.

For example, what if TIDE POWDER is sold at P8 pesos? What will happen? It will result to a surplus.
Excess supply or surplus happens when the quantity supplied is greater than the quantity demanded;
because the price of the product is too high. In the graph above, TIDE POWDER sold at P8 will
encourage manufacturers to supply the market with 600 sachets but will discourage a total of 400
consumers because its too expensive.
Meanwhile if the price is too low, excess demand or shortage happens that is the quantity supplied is
less than the quantity demanded. In the same graph, 600 people are willing to buy TIDE POWDER
priced at P4 because its very cheap but there are only 200 sachets available in the market because the
suppliers are doubtful of gaining any profit (di sila ganahan mubaligya kay lugi sila ana na presyo).

If a market is not at equilibrium, market forces (the red arrows) tend to move it to equilibrium. Let's
break this concept down.

If the market price is above the equilibrium value, there is a surplus. In this situation, sellers will tend
to reduce the price of their good or service to clear their inventories. They probably will also slow
down their production or stop ordering new inventory. The lower price entices more people to buy,
which will reduce the supply further. This process will result in demand increasing and supply
decreasing until the market price equals the equilibrium price.
(Sa bisaya pa, kung ang presyo ibabaw sa equilibrium price, resulta kay surplus. So ang mga seller,
baratuhan nila ang presyo para mabaligya nila tanang goods or produkto nga naa nila or nakastock sa
ila mga bodega or tindahan. Naay mga seller, gamyan sa nila ilang himoong goods; ang uban di sa
mu.order ug goods para ibaligya kay daghan pa sila stock. Kay ubos man ang presyo, mas daghan na
ang mupalit ug mu-ubos na dayon ang supply. Tan-awa ang red arrows na paubos sa graph. Ang resulta,
mudako ang demand, mugamay ang supply hangtod sa muabot ang presyo sa equilibrium price.)

If the market price is below the equilibrium value, then there is shortage. In this case, buyers will bid
up the price of the good or service in order to obtain the good or service in short supply. As the price
goes up, some buyers will quit trying because they don't want to, or can't, pay the higher price.
Additionally, sellers, more than happy to see the demand, will start to supply more of it. Eventually, the
upward pressure on price and supply will stabilize at market equilibrium.
(Kung ang presyo ubos sa equilibrium price, naa pud shortage. Kay barato ra kaayo ang presyo daghan
mag-ilog ug palit. Sa hapit na mahutdan, naa nay shortage, naay mga tao na willing mupalit bisan tasan ang presyo. Mao ng mag-increase ang price. Kay nimahal naman, ang uban tao na ganahan kaayo
mupalit sauna kay barato pa to dili na mupalit kay di na ka afford. While, ang mga seller, ganahan na
musupply ug daghan kay nitaas naman ang presyo unya naa gihapon willing mupalit. Tan-awa ang red
arrows na naka-point pataas. Diba ang resulta, nisaka ang supply paibabaw, niubos pud ang demand
paibabaw. Hangtod sa muabot ang situation sa market equilibrium.)
TO SUMMARIZE...

CHANGES IN THE DEMAND OR SUPPLY CURVE AND ITS EFFECT ON EQUILIBRIUM

PRICE AND QUANTITY

An increase in supply (S) with constant demand (D) will decrease the equilibrium
price (P) and increase the equilibrium quantity (Q).
Similarly, a decrease in supply (S) with constant demand (D) will increase the
equilibrium price (P) and decrease the equilibrium quantity (Q).
Alternatively, an increase in demand D with constant supply (S) will increase both the
equilibrium price (P) and equilibrium quantity (Q). A decrease in demand (D) with

constant supply (S) will decrease both the equilibrium price (P) and equilibrium
quantity (Q).

SCENARIO 1. A new brand for detergent soap was introduced to the public, BONUX 3 in 1 which
costs 1 pesos less than the TIDE DETERGENT. BONUX was successfully promoted through catchy
advertisements and free samples. Bonux immediately attracted many consumers. What will happen to
the equilibrium price?
ANSWER: Many people will likely pick BONUX over TIDE because its cheaper. As result the
quantity of TIDE detergent sold to consumers at the p6 price will decrease and the demand curve will
shift to the left. Thus, the equilibrium price and quantity will be lower.

SCENARIO 2. In order to defeat its competition, TIDE POWDER sachets were added 20% in its
content and was still sold at the same price of P6.
ANSWER: In this scenario. buyers of TIDE POWDER sachet priced at P6 will increase because it has
more content than its rival brands. So, the demand curve shifts to the right. As a result, the equilibrium
price and quantity is higher.

SCENARIO 3. The company manufacturing TIDE POWDER sachets faced financial problems after its
biggest factory was ravaged and destroyed by a supertyphoon. It had lay off some of its workers and
cut its production. But it continues to supply its product to the market at P6 per sachet, determined not
to lose its loyal consumers.
ANSWER: Obviously, supply will go down. The supply curve shifts to the left resulting in a higher
equilibrium price but lower equilibrium quantity.

SCENARIO 4. The company manufacturing TIDE POWDER sachets bought high tech machines to
speed up production. Despite this development, the detergent was still sold to the maket at P6 per
sachet.
ANSWER: Machines will definitely boost production. So there is more supply and the supply curve
shifts to the left. As result, there is a lower equilibrium price and higher equilibrium quantity.

VISUAL AIDS
Market equilibrium- a market state where the supply in the market is equal to the
demand in the market
Equilibrium price- is the price of a good or service when the supply of it is equal to
the demand for it in the market. If a market is at equilibrium, the price will not
change unless an external factor changes the supply or demand, which results in a
disruption of the equilibrium.
Equilibrium price is also called market clearing price because at this price the exact
quantity that producers take to market will be bought by consumers, and there will
be nothing left over.
Excess supply or surplus- price of the product is too high; the quantity supplied is greater than
the quantity demanded

Excess demand or shortage- price of the product is too low; quantity supplied is less
than the quantity demanded.

An increase
in supply (S) with constant demand (D) will decrease the equilibrium price (P) and
increase the equilibrium quantity (Q).

Similarly, a decrease in supply (S) with constant demand (D) will increase the
equilibrium price (P) and decrease the equilibrium quantity (Q).
Alternatively, an increase in demand D with constant supply (S) will increase both the
equilibrium price (P) and equilibrium quantity (Q). A decrease in demand (D) with
constant supply (S) will decrease both the equilibrium price (P) and equilibrium
quantity (Q).