The Market Forces of Supply and

Demand: Part 3

Lecture Series in Basic Microeconomics

Prepared by Elizabeth R. Bajit, Ph.D.
CBAA, CLSU
 Supply and Demand Together
Market equilibrium – a condition where
the quantity supplied and quantity
demanded are equal. It is the condition
where the supply curve intersects the
demand curve.
Equilibrium price – the price that
equates or balances the quantity
supplied and quantity demanded.
Equilibrium quantity – the quantity
supplied which is equal to the quantity
demanded at the equilibrium price.
Mankiw (2018)
 Market Disequilibrium
Surplus – a condition where the
quantity supplied is higher than the
quantity demanded or in short there
is excess supply.

This occurs at a price which is higher

than the equilibrium price.

Price adjusts downward to clear the

market.
 Market Disequilibrium
Shortage – a condition where the
quantity demanded is higher than
the quantity supplied or in short
there is excess demand.

This occurs at a price which is

lower than the equilibrium price.

Price adjusts upward to clear the

market.
Changes in Equilibrium (Demand Shifting
to the Right)
Given the supply curve, a shift in the
demand curve to the right changes the
equilibrium price and quantity.
What happens to the equilibrium price?
What happens to the equilibrium qty?
Hint:
1. Check if the event causes the supply,
the demand or both to shift.
2. Check in what directions they move.
3. Use the supply demand diagram to
see what happen to the price and
quantity.
 Changes in Equilibrium (Supply
Shifting to the Left)

Given the demand, a shift in the supply curve

to the left changes the equilibrium price and
quantity.
What happens to the equilibrium quantity?
What happens to the equilibrium price?
 Changes in Equilibrium(Demand Shifting to the
Right
in Greater Magnitude Compared to Supply
Shifting to the Left
1. When the demand curve shifts to the right, both price and
quantity are expected to increase
2. When the supply curve shifts to the left, price is expected to
increase while quantity is expected to decrease.
3. How do we know what is the net effect on price and quantity?
We have to compare the magnitudes of the change in demand
and supply
4. Demand shifting to the right and supply curve shifting to the left
cause the equilibrium price to increase
5. Demand shifting to the right causes the quantity to increase but
supply shifting to the left causes the quantity to decrease, since
the magnitude of the change in demand is greater than the
magnitude of the change in supply, the effect from the
demand dominates, so the equilibrium quantity increases.
 Changes in Equilibrium(Demand Shifting
to the Right
in Smaller Magnitude Compared to
Supply Shifting to the Left
1. When the demand curve shifts to the right, both price and
quantity are expected to increase
2. When the supply curve shifts to the left, price is expected to
increase while quantity is expected to decrease.
3. How do we know what is the net effect on price and quantity?
We have to compare the magnitudes of the change in demand
and supply
4. Demand shifting to the right and supply curve shifting to the left
cause the equilibrium price to increase
5. Demand shifting to the right causes the quantity to increase but
supply shifting to the left causes the quantity to decrease, since
the magnitude of the change in demand is lesser than the
magnitude of the change in supply, the effect from the supply
dominates, so the equilibrium quantity decreases.
 Sample Computation of Equilibrium Price and
Equilibrium Quantity
The demand and supply of good x are given as: Qd = 100 – 6 P and Qs = 28 + 3 P
a)What is the price where the market clears (or the equilibrium price)?
Solution: Qd = Qs
100 – 6P = 28 + 3P
100 – 28 = 6P + 3P
72 = 9P
72/9 = P
8 = P equilibrium price
b) What is the equilibrium quantity?
Solution Qd = 100 – 6P = 100 – 6(8) = 100 – 48 = 52
Qs = 28 + 3P = 28 + 3(8) = 28 + 24 = 52
c) Fill up the following table:
Price 2 4 6 8 10 12 14 16
Qd 88 76 64 52 40 28 16 4
Qs 34 40 46 52 58 64 70 76
Qs - Qd -54 -36 -18 0 18 36 54 72
 Sample Computation of Equilibrium Price
and Equilibrium Quantity
d) At what price did the shortage occur?
A) when the price is below the equilibrium price
B) when the price is above the equilibrium price
Answer: A
e) At what price did the surplus occur?
A) when the price is below the equilibrium price
B) when the price is above the equilibrium price
Answer: B
f) What should happen to the price to eliminate the shortage?
Answer: Increase the price
g) What should happen to the price to eliminate the surplus?
Answer: reduce the price
 Things to Think About
1) Draw an original demand and original supply. Shift both the demand and supply to
the right with the same magnitudes. What happen to the equilibrium price and
equilibrium quantity?
2) Draw an original demand and original supply. Shift both the demand and supply
to the left with the same magnitudes. What happen to the equilibrium price
and equilibrium quantity?
3) Draw an original demand and original supply. Shift the supply to the right in greater
magnitude compared to the leftward shift in demand. What happen to the
equilibrium price and equilibrium quantity?
Hint: Follow the following labeling
Do – original demand D1 – demand after the shift
So – original supply S1 – supply after the shift
 Things to Think About
4. Which of the following is correct regarding the supply and demand of vegetables in Benguet if the vegetables have been
affected by frost?
A. Supply curve shifts to the right
B. Supply curve shifts to the left
C. Demand curve shifts to the right
D. Demand curve shifts to the left
5. Which is true regarding the demand and supply of ham if the consumers receive their Christmas bonuses?
A. Supply curve shifts to the right
B. Supply curve shifts to the left
C. Demand curve shifts to the right
D. Demand curve shifts to the left
6. If the quantity demanded is 10,000 kg of rice when the price of rice per kg is Php40 and the quantity demanded is
reduced to 8,000 when the price increased to Php45, what is the slope of the demand curve? Hint slope = (Q2-Q1)/(P2-P1)
7. What is the slope of the supply curve if the quantity supplied increases although the price is the same?
 References
1. Colander, D. C. (2020). Microeconomics (11th Edition). New York, N. Y.: McGraw
Hill Education

2. Mankiw, N. G. (2018). Principles of Economics (8th Edition). Boston MA, USA:

Cengage Learning

3. Zulueta, L. B (2018, July 16). 10 most expensive Philippine art works sold on
auction
https://lifestyle.inquirer.net/300264/top-10-expensive-philippine-art-works-sold-au
ction/#ixzz7dyp66R36
This ends our lecture on the topic
market forces of supply and
demand.