do ..i e115; 0 3 >330: iii 8:18 X 0' BASIC MICROECONOMICS LESSON GUIDE MARKET EQUILIBRIUM AND DEMAND AND SUPPLY EQUATION Market Equilibrium This is a condition when demand IS equal to supply (DEMAND = SUPPLY). Graph of Demand, Supply. and Market Equilibrium S'lcltInS Equilibrium Price SSVlclOHS Equilibrium Quantity Shortage. This is a condition when the demand exceeds the supply. Shortage a Demand > Supply; Price Demand; Price > Equilibrium Price Demand and Supply Equation The demand equation is formed as DEMAND = ODn + mF. The supply equation is formed as SUPPLY = as\" + mP, Wherein. ODD is quantity demanded at price zero, 083 is quantity supplied at price zero. m is for slope (negative slope for demand; positive slope for supply); P is for price. Application of the Demand and Supply Equation First Step. Compute forlhe slope. Slope for demand is always negative and slope for supply is always positive. m:QD27QD|IP27PI m=082EQSiIP27Pi Second Step. Compute for 000 and 030 using any quantity at a specific price from the demand and supply schedules. Use the equations in substituting the computed slope and the selected values. Third Step. Construct the demand and supply equation by substituting the computed values in the first and second step. E) I' O (51 III as ..ui '2? ii; 0 3 >330: Ear 8:18 X 0' BASIC MICROECONOMICS LESSON GUlDE ELASTICITY OF DEMAND Elasticity. This refers to the sensmwty and reaction of the market to the economic changes more particularly In price. This also pertains to the degree of responsiveness of the buyers and sellers to the changes. Concept of Elasticity of Demand The law of demand states that when price goes up. the quantity demanded goes down, when the price goes down the quantity demanded goes up. However, the question is how much does quantity demanded change when the price changes by a lot or by a little. A demand curve is said to be elastic when an increase in price reduces the quantity demanded a lot 7 the quantity is changing so much in response to the price. 0n the other hand' when the same increase in price reduces the quantity demanded just a little, the demand curve is said to De inelastic or less elastic or not elastic. Determinants of Elasticity of Demand. Availability of Substitutes | Nature of Goods l Size of Purchase Application of Price Elasticity of Demand ELASTICITY VALUE CLASSIFICATION | EF'D l = 0 Perfectly Inelastic | EPD l 1 Elastic l EpD | = no Perfectly Elastic | EPDI absolute value \"A: change in Quantity Demanded ngg % change in Price EggP1 Graph of Elasticity of Demand susric luau-sac FERFIETLY Wm (Mini? U FERKEC rt v mmisric E) I' O (51 III