You are on page 1of 4

School of the Holy Child Angeles, Incorporated

101 George Avenue, Villa Angelina Subdivision, Angeles City

Social Studies 10

Kristine Mari P. Demapendan

Ms. Gimberly O. Sales

Production Linkage

Connection or relation between factors of production

The factors of production are resources that are the building


blocks of the economy. The first factor of production is land, but
this includes any natural resource used to produce goods and
services. This includes not just land, but anything that comes
from the land. The second factor of production is labor. Labor is
the effort that people contribute to the production of goods and
services. The fourth factor of production is entrepreneurship. An
entrepreneur is a person who combines the other factors of
production - land, labor, and capital - to earn a profit.
Concept of Demand
What is Demand?
Demand is an economic principle that describes a consumer's
desire and willingness to pay a price for a specific good or service.
How demand affects production and consumption
Economists have a very precise definition of demand. For them
demand is the relationship between the quantity of a good or
service consumers will purchase and the price charged for that

good. More precisely and formally the Economics Glossary defines


demand as "the want or desire to possess a good or service with
the necessary goods, services, or financial instruments necessary
to make a legal transaction for those goods or services." Demand
is not simply a quantity consumers wish to purchase such as '5
oranges' or '17 books', because demand represents the entire
relationship between quantities desired of a good and all possible
prices charged for that good. The specific quantity desired for a
good at a given price is known as the quantity demanded.
Typically a time period is also given when describing quantity
demanded. When the price of an orange is 65 pesos the quantity
demanded is 300 oranges a week. If the local Starbucks lowers
their price of a tall coffee from P175 to P165, the quantity
demanded will rise from 45 coffees an hour to 48 coffees an hour.
Explanation of the law of demand
The law of demand states that, if all other factors remain equal,
the higher the price of a good, the less people will demand that
good. In other words, the higher the price, the lower the quantity
demanded. The amount of a good that buyers purchase at a
higher price is less because as the price of a good goes up, so
does the opportunity cost of buying that good. As a result, people
will naturally avoid buying a product that will force them to forgo
the consumption of something else they value more. Imagine that
a special edition CD of your favorite band is released for P200.
Because the record company's previous analysis showed that
consumers will not demand CDs at a price higher than P200, only
ten CDs were released because the opportunity cost is too high
for suppliers to produce more.
Elasticity Demand
How price manipulates demand

Price elasticity of demand (PED) shows the relationship between


price and quantity demanded and provides a precise calculation
of the effect of a change in price on quantity demanded.
% change in quantity demanded
% change in price
We can use this equation to calculate the effect of price changes
on quantity demanded, and on the revenue received by firms
before and after any price change. For example, if the price of a
daily newspaper increases from P1.00 to P1.20, and the daily
sales fall from 500,000 to 250,000, the PED will be: -50% / 20% =
(-) 2.5. The negative sign indicates that P and Q are inversely
related, which we would expect for most price/demand
relationships. This is significant because the newspaper supplier
can calculate or estimate how revenue will be affected by the
change in price. In this case, revenue at P1.00 is P500, 000 (P1 x
500,000) but falls to 300,000 after the price rise (P1.20 x
250,000).