Implications of Market Pricing in Making Economic Decisions

Water Scarcity in the Philippines

Issue: According to Vice News, 55 people die in the Philippines every day due to lack of clean water.
Statistics: Over 30 million people in the Philippines lack access to improved sanitation. By 2050, the population in areas with poverty in Manila will exceed 9 million.
Impact: With a rising population, the demand for clean water will outpace the supply, leading to economic issues related to water scarcity.

Demand and Supply Elasticity: The concept of demand and supply elasticity helps explain the causes and effects of water shortages in the Philippines.
Shortage: Occurs when demand exceeds the supply, e.g., 10 bottles of water for 20 students. Only 10 students will get water, creating a shortage.
Surplus: Occurs when supply exceeds demand, leading to an excess of goods.

Role of Prices: Prices determine the efficient distribution of resources. They influence daily economic decisions related to needs and desires. Popular products tend to have higher prices.
Market Forces: Prices are determined by the interaction between producers and consumers, rather than by either group individually.
1. Price Signals:
  - In a shortage, prices tend to rise, reducing demand and increasing supply.
  - In a surplus, prices tend to fall, increasing demand and reducing supply.
2. Redistribution of Resources: Prices help shift resources from low-demand goods to those in higher demand.
3. Market Price: The price at which supply and demand intersect, ensuring equilibrium in the market.

Surplus: Occurs when the supply exceeds demand, causing prices to drop. This leads to lower prices and reduced production.

In a market economy, both producers and consumers make decisions independently. When prices are high, more suppliers enter the market, increasing the supply.
- Example: The rise in prices for smartphones attracted more producers to the market, leading to greater supply.

Equilibrium Price: The price at which a producer can sell all units and a buyer can purchase all desired units. This occurs when the quantity supplied equals the quantity demanded.
Equilibrium Characteristics:
- Equilibrium is the point where supply and demand are balanced (market-clearing price).
- In equilibrium, buyers' demand and sellers' supply are equal.
- External influences, like government policies or unforeseen events, can disrupt equilibrium.

Market Equilibrium occurs when the quantity demanded equals the quantity supplied.
1. Example:
  - Demand function for Good X: Qd = 60 – P/2
  - Supply function for Good X: Qs = 5 + 5P
  - The equilibrium price occurs at P10, where both quantity demanded and supplied equal 55.