BACHELOR OF ARTS IN ECONOMICS Econ 111 – ECONOMIC ANALYSIS Pangasinan State University Social Science Department – PSU Lingayen CHAPTER 5 MARKET EQUILIBRIUM ANALYSIS 2 nd Semester, S.Y 2013 – 2014

BACHELOR OF ARTS IN ECONOMICS Econ 111 – ECONOMIC ANALYSIS Pangasinan State University Social Science Department – PSU Lingayen Market Equilibrium Market Equilibrium is a situation in which the quantity demanded of a good or service at a particular price is equal to the quantity supplied at that price.

BACHELOR OF ARTS IN ECONOMICS Econ 111 – ECONOMIC ANALYSIS Pangasinan State University Social Science Department – PSU Lingayen Price as a Regulator The price of a good regulates the quantities demanded and supplied. If the price is too high, the quantity supplied exceeds the quantity demanded. If the price is too low, the quantity demanded exceeds the quantity supplied. There is one price at which the quantity demanded equals the quantity supplied.

BACHELOR OF ARTS IN ECONOMICS Econ 111 – ECONOMIC ANALYSIS Pangasinan State University Social Science Department – PSU Lingayen Equilibrium Price and Quantity Equilibrium price is the price at which the quantity of a product demanded by consumers the quantity supplied by producers are equal. The quantity bought and sold at that price is the equilibrium quantity. The equilibrium price is also known as the market-clearing price: it is the price that “clears the market” by ensuring that every buyer willing to pay that price finds a seller willing to sell at that price, and vice versa.

BACHELOR OF ARTS IN ECONOMICS Econ 111 – ECONOMIC ANALYSIS Pangasinan State University Social Science Department – PSU Lingayen Surplus, Shortage, and Equilibrium The market may experience a surplus (excess supply), which is the result of quantity supplied being greater than quantity demanded, usually because prices are too high. Or a shortage (excess demand) may occur, the result of quantity demanded being greater than quantity supplied, usually because prices are too low.

BACHELOR OF ARTS IN ECONOMICS Econ 111 – ECONOMIC ANALYSIS Pangasinan State University Social Science Department – PSU Lingayen A The Graphical Interaction of Supply and Demand Price S D Quantity C Excess demand Excess supply E

BACHELOR OF ARTS IN ECONOMICS Econ 111 – ECONOMIC ANALYSIS Pangasinan State University Social Science Department – PSU Lingayen Price Quantity Demanded Quantity Supplied Shortage (-) or Surplus (+) Market Analysis for T-shirts

BACHELOR OF ARTS IN ECONOMICS Econ 111 – ECONOMIC ANALYSIS Pangasinan State University Social Science Department – PSU Lingayen Price Quantity Demanded (Original) Quantity Demanded (New) Quantity Supplied Change in Demand and Equilibrium Price Increase in Demand

BACHELOR OF ARTS IN ECONOMICS Econ 111 – ECONOMIC ANALYSIS Pangasinan State University Social Science Department – PSU Lingayen Price Quantity Demanded (Original) Quantity Demanded (New) Quantity Supplied Change in Demand and Equilibrium Price Decrease in Demand

BACHELOR OF ARTS IN ECONOMICS Econ 111 – ECONOMIC ANALYSIS Pangasinan State University Social Science Department – PSU Lingayen Price Quantity Demanded Quantity Supplied (Original) Quantity Supplied (New) Change in Supply and Equilibrium Price Increase in Supply

BACHELOR OF ARTS IN ECONOMICS Econ 111 – ECONOMIC ANALYSIS Pangasinan State University Social Science Department – PSU Lingayen Price Quantity Demanded Quantity Supplied (Original) Quantity Supplied (New) Change in Supply and Equilibrium Price Decrease in Supply

BACHELOR OF ARTS IN ECONOMICS Econ 111 – ECONOMIC ANALYSIS Pangasinan State University Social Science Department – PSU Lingayen Equilibrium price falls when there is a decrease in demand or an increase in supply. Equilibrium price rises when there is an increase in demand or a decrease in supply. In other words, when consumers want less or producers supply more, prices will fall. When consumers want more or producers supply less, prices will rise. Change in Supply and Demand and Equilibrium Price

BACHELOR OF ARTS IN ECONOMICS Econ 111 – ECONOMIC ANALYSIS Pangasinan State University Social Science Department – PSU Lingayen Increase in both Demand and Supply

BACHELOR OF ARTS IN ECONOMICS Econ 111 – ECONOMIC ANALYSIS Pangasinan State University Social Science Department – PSU Lingayen Decrease in Demand and Increase in Supply

BACHELOR OF ARTS IN ECONOMICS Econ 111 – ECONOMIC ANALYSIS Pangasinan State University Social Science Department – PSU Lingayen Increase in Demand and Decrease in Supply

BACHELOR OF ARTS IN ECONOMICS Econ 111 – ECONOMIC ANALYSIS Pangasinan State University Social Science Department – PSU Lingayen Decrease in both Demand and Supply