Economics

Economics Reviewer
(For IV- Understanding ONLY)
Market – the medium in which buyers and sellers interact. (Note: its meaning is not limited to a location or geographical area, it also focuses on people who are WILLING and ABLE to buy and/or sell goods and services.
Two major players/actors in the market: Buyers & Sellers
Market Equilibrium: when buyers and sellers agree at a certain price and quantity to transact

Price Equilibrium: price agreed by both buyers and sellers.
Quantity Equilibrium: quantity agreed by both buyers and sellers.
QD – Quantity Demanded QS – Quantity Supplied
When QD is less than (<) QS, Market Surplus occurs. Ex: QD = 10 QS = 12 QD<QS
- It is above the Point of Equilibrium
- There is excess supply
*When Market Surplus occurs, the Sellers will be forced to lower the price to price equilibrium.

When QS is less than (<) QD, Market Shortage occurs. Ex: QS = 10 QD= 14 QS<QD
- It is below the Point of Equilibrium
- There is excess demand
*When Market Shortage occurs, the Buyers are willing to pull up the price to price equilibrium. How to get equilibrium price and quantity?
Ex: QD = 18- 2P QS = 2 + 6P
For Price: QD = QS For Equilibrium: 18- 2P = 2 + 6P 18 – 2(2) = 2 + 6(2) -2P – 6P = 2- 18 18-4 = 2 + 12 -8P = -16 14 =14 Pe = 2 pesos Qe = 14 units
Government Intervention by Setting the Price 1. Price Floor/ Price Support * Minimum price * Above the price equilibrium * Market Surplus/ excess in supply * The gov’t will buy the excess supply in the market * Ex: Agricultural Products: Rice, meats, crops, chicken, eggs * Farmers, Suppliers or sellers of