AP · Ekonomiks (Kabanata 6)

Demand, Supply, at Ekilibriyo sa Pamilihan

Comprehensive study guide covering the laws of demand and supply, market equilibrium, disequilibrium states (surplus and shortage), non-price determinants, and government price controls.

Part I

1. Overview & Key Terminology

Fundamental terms and guiding principles governing market forces and price determination.

"The price of ability does not depend on merit but on supply and demand." — George Bernard Shaw

"The equilibrium between supply and demand is achieved only through a reaction against the upsetting of the equilibrium." — David Harvey

Demand — The quantity of a product or service that consumers are willing and able to buy at a specific price during a given period.

Supply (Suplay) — The quantity of a product or service that producers are willing and able to sell at a specific price during a given period.

Equilibrium Point (Ekilibriyo) — The intersection of the demand and supply curves where quantity demanded equals quantity supplied.

Market Price — The agreed-upon price corresponding to the equilibrium point, leaving no excess or deficit in the market.

Surplus (Kalabisan) — Occurs when quantity supplied exceeds quantity demanded ($Q_s > Q_d$) at a set price, putting downward pressure on prices.

Shortage (Kakulangan) — Occurs when quantity demanded exceeds quantity supplied ($Q_d > Q_s$) at a set price, putting upward pressure on prices.

Part II

2. Konsepto ng Demand

The consumer side of the market: how price and non-price factors influence consumer purchasing decisions.

Quantity Demanded ($q$)

The specific amount of a product or service buyers are ready and able to purchase at a set price during a particular timeframe.

Law of Demand

States that price and quantity demanded have an inverse (indirectly proportional) relationship — when price decreases, quantity demanded increases; when price increases, quantity demanded decreases.

Demand Curve

A graphical representation of the law of demand featuring a negative (downward-sloping) slope due to the inverse relationship between price and quantity demanded.

Demand Function

Mathematical formula expressing quantity demanded as a function of price: q = d(p).

Demand Schedule

A tabular representation showing the specific quantity demanded at various price points in a market.

Individual vs. Market Demand

Individual Demand: Demand of a single consumer.
Market Demand: Combined total demand of all consumers in the market.

Non-Price Determinants of Demand

Factors that cause the entire demand curve to shift right (increase) or left (decrease) independent of price changes:

1. Buyer's Income

Normal Goods: Demand increases as income increases (income effect).
Inferior Goods: Demand decreases as income increases (consumed primarily during financial hardship).

2. Tastes & Preferences

Changes in trends, culture, endorsement, seasonal shifts, or lifestyle directly alter consumer interest.

3. Consumer Population

An increase in the total number of buyers expands overall market demand; a shrinking population reduces demand.

4. Price of Substitute Goods

An increase in the price of one product increases the demand for its lower-cost alternative (e.g., coffee price hike boosts tea demand).

5. Price of Complementary Goods

Products consumed together have linked demand; an increase in demand for shoes directly raises demand for socks.

6. Consumer Expectations

Anticipating higher future prices increases current demand; expecting lower future prices delays purchases and drops current demand.

Part III

3. Konsepto ng Suplay

The producer side of the market: how price incentives and production factors determine supply levels.

Quantity Supplied ($q$)

The specific quantity of a product or service that sellers are ready and able to offer at a set price during a given timeframe.

Law of Supply

States that price and quantity supplied have a direct (directly proportional) relationship — when price increases, quantity supplied increases; when price decreases, quantity supplied decreases.

Supply Curve

A graphical representation of the law of supply featuring a positive (upward-sloping) slope driven by profit motives.

Supply Function

Mathematical formula expressing quantity supplied as a function of price: q = s(p).

Supply Schedule

A tabular schedule depicting the specific quantities supplied by producers across various price points.

Individual vs. Market Supply

Individual Supply: Supply from a single producer.
Market Supply: Sum total of supply from all sellers operating in the market.

Non-Price Determinants of Supply

Factors causing the supply curve to shift right (expansion) or left (contraction) independent of product price:

1. Number of Suppliers

More active sellers increase total production capacity and raise market supply.

2. Cost of Production

Higher raw material, electricity, or labor costs reduce profit margins and lower supply; reduced production costs increase supply.

3. Factor Productivity

Enhanced efficiency of labor, machinery, and land increases output yield per unit time and expands supply.

4. Technology

Modern production technologies accelerate output speed, decrease waste, and significantly elevate overall supply.

5. Producer Expectations

Expecting higher prices in the future prompts sellers to withhold current supply to sell later at higher profit margins.

6. Price of Related Goods

Reallocating raw materials toward higher-priced alternative goods reduces the supply of the original product (e.g., sugarcane used for ethanol reduces sugar supply).

7. Government Policies

Taxes increase operational costs and reduce supply; government subsidies lower production costs and boost supply.

Part IV

4. Market Equilibrium & Disequilibrium

How free market forces interact to reach equilibrium, and the consequences of market imbalance.

Inter-aksiyon sa Pamilihan: Neither buyers nor sellers can unilaterally dictate market price in a competitive environment. Free interaction between demand and supply forces balances the market at the Equilibrium Point.

Presyo (PHP)	Quantity Demanded ($Q_d$)	Quantity Supplied ($Q_s$)	Market Condition	Price Tendency
10	90	10	Shortage (-80)	Pushes price UP
20	70	30	Shortage (-40)	Pushes price UP
30 (Market Price)	50	50	Equilibrium Point (0)	STABLE
40	30	70	Surplus (+40)	Pushes price DOWN
50	10	90	Surplus (+80)	Pushes price DOWN

Shortage

Kakulangan ($Q_d > Q_s$)

Occurs when price is below equilibrium. Severe, prolonged shortages lead to supply scarcity and inflation as buyers compete for limited goods.

Surplus

Kalabisan ($Q_s > Q_d$)

Occurs when price is above equilibrium. Excessive unsold inventory forces price drops, which can lead to economic deflation.

Part V

5. Interbensiyon ng Pamahalaan (Price Controls)

Government policies enacted during emergencies, calamities, or unfair market conditions to protect public welfare.

Price Control refers to legal measures implemented by the government to restrict or fix product prices to preserve economic stability and prevent seller exploitation.

Price Ceiling (Maximum Price Limit)

Goal: Protect consumers from exorbitant price hikes during crises, typhoons, or shortages (e.g., PHP 45 price cap on rice).

Structure: Legal maximum price set below equilibrium price.

Side Effect: If set too low, producer motivation drops, leading to a market shortage.

Price Floor (Minimum Price Limit)

Goal: Protect producers and workers from unprofitably low prices (e.g., Minimum Wage Law, NFA support price for palay).

Structure: Legal minimum price set above equilibrium price.

Side Effect: If set too high, consumer demand drops, leading to a market surplus.

Super Short Reviewer

Demand vs Supply Curves

Demand Curve: Negative slope (Downward \ — Inverse $P$ & $Q_d$)
Supply Curve: Positive slope (Upward / — Direct $P$ & $Q_s$)

Market State Formula

Equilibrium: $Q_d = Q_s$ (Market Price)
Shortage: $Q_d > Q_s$ (Price Rises)
Surplus: $Q_s > Q_d$ (Price Drops)

Price Controls Core

Price Ceiling: Max price limit → Protects consumers → Causes Shortage
Price Floor: Min price limit → Protects producers → Causes Surplus