Supply schedule is a table that shows the relationship between the

Year Price of Rice Quantity Supply of Rice in

price
of a
Price of Rice per kilo
per kilo thousand metric tons good
2002 P18.00 8450 and
the
2003 17.00 8300
2004 19.00 8500
2005
quantity supplied
23.0 8950
Quanti
Supply curve graphs the supply schedule. It is upward sloping
ty
Supply
of Rice
in
thousa
nd
metric
tons
Supply Function
- is the estimated relationship between Quantity
Demand and Price. Let Y=Qs and X=Price
Derive the supply function
Interpret the slope (b)
Lowest price that the supplier can set

Law of Supply
 As the price of a product rises, producers will be willing to
supply more cet. par. (vice-versa)
The law of supply is accounted for by two factors:
When prices rise, firms substitute production of one
good for another.
Assuming firms costs are constant, a higher price
means higher profits.
Case Study:
The government wants to decrease the consumption for cigarettes due
to an increasing incident of pulmonary cancer. Thus, the government
implemented a 16% increase on tax for cigarettes which resulted to an
increase in price by P2.40/stick to P2.80/stick. Due to a price increase
consumption for cigarettes had decrease from 57 million sticks to 49.5
million of sticks. Is the tax effective or ineffective?
Elasticity the concept
The responsiveness of one variable to changes in another
When price rises, what happens
to demand?
Demand falls
How much does demand fall?
Elasticity measures the extent to which demand will change
Price Elasticity of Demand
Where % change in demand
is greater than % change in price elastic
If Ped is greater than 1 : the relationship is elastic
Luxury product
Where % change in demand is less than % change in price - inelastic
If Ped is lesser than 1 : the relationship is inelastic
Necessity product
Where % change in demand is less than % change in price - unitary
If Ped is equal to 1 : the relationship is unitary
Assignment:
I. Use the information given in the table
 Service Before After a. Bus and Vessel (use the price of bus and the Qd for vessel)
b. Bus and Airplane Vessel (use the price of bus and the Qd
Price Number Price Number for airplane)
/ of / of 2. Which among Vessel and Airplane is the closest substitute for
Trip Passenger Trip Passenger Bus?
s s II. Use the information given in the table
Bus 1,60 720 1,85 680 Price of Rice per Quantity Supply of Rice in
0 0 kilo thousand metric tons
2002 P18.00 8450
Vessel 2,40 6,600 2,40 7,100 2003 17.00 8300
0 0 1. Solve for the supply price elasticity of rice
Airplan 3,50 3,000 3,50 4,700 2. Will higher prices of rice gives incentive of farmers to supply
e 0 0 more?
1. Solve for the cross elasticity of: