Engineering economy lorie m. Cabanayan francisco d. Cuaresma

 
The Law of Supply and Demand 
The law of supply and demand may be stated as follows: 
“Under conditions of perfect competition the price at which a given product will be supplied 
and purchased is the price that will result in the supply and the demand being equal.
” 
Figure 4. Price-Supply- Demand Relationship 
 
 
 
 
 
 
 
 
Supply and Demand 
Price 
Supply 

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When supply and demand are equal (i.e. when the supply function and demand function 
intersect) the economy is said to be at equilibrium. At this point, the allocation of goods is at its 
most efficient because the amount of goods being supplied is exactly the same as the amount of 
goods being demanded. Thus, everyone (individuals, firms, or countries) is satisfied with the current 
economic condition. At the given price, suppliers are selling all the goods that they have produced 
and consumers are getting all the goods that they are demanding. 
 
Competition, Monopoly, and Oligopoly 
 
Perfect competition occurs in a situation where a commodity or services is supplied by a 
number of vendors and there is nothing to prevent additional vendors entering the market. There is 
no restriction against other vendors from entering the market. Buyers are free to buy from any 
vendor, and the vendors likewise are free to sell to anyone. 
An opposite of perfect competition is Perfect monopoly which exist when a unique product 
or service is available from only a single vendor and that vendor can prevent the entry of all others 
into the market. Examples of monopolies are the services offered by Meralco electric pants 
throughout the country, the telephone companies and other public utilities, in which the sole right 
are being granted by the government. 
Oligopoly exists when there are so few suppliers of a product or service that action by one will 
almost inevitable result in similar action by the others. Examples of oligopoly in the Philippines are 
the oil companies and manufacturers of soft drinks who hold franchises to produce drinks of foreign 
origin. Any change in price of anyone of them is usually accompanied by a similar change by the 
other competitors.