The law of demand

When the price of good increases, buyers tend to buy less of the good.
When the price of good decreases, buyers tend to buy more of the good.
As you see the graph, it shows how the law of demand is by price.
It goes down, that means slope of the graph is a negative and inverse relationship between price of goods
and demand of customers.
Quantity demand is normally dictated by the changes in price. However, there are also other factors that
influence demand.
These cases shift the demand curve to the right or to the left even if the price does not change.
There are 5 determinants of demand

1.Changes in the average income

As people’s income go up, demand for goods increases.

As people’s income go down, demand for goods decreases.

2.Changes in the size of population

3.Changes in tastes and preference

preference or tastes also affects shift in demand. Since 2000, the Filipino’s demand for cellular phones
has drastically increased, As new, modern and innovative phones like touch-screen phones, people has
been attracted by that. On the other hand, demand for old phones are no longer popular to people.

4.Price of related goods

a) substitute goods - (those that can be used to replace each other): price of substitute and demand for
the other good are directly related. Substitutes are goods that can consumers buy in place of the other like
how Coca-Cola & Pepsi are very close substitutes. If the price of one goes up, the demand for the other
will rise.
Example: If the price of coffee rises, the demand for tea should increase.

b) complement goods
Complementary goods are goods you usually buy together, like bread and butter, tea and milk.
If the price of one goes up, the demand for the other good will fall. For example, if the price of
yoga classes fell then there would be an increase in demand for yoga mats.

5.Expectation
if people expect the price of a good to increase shortly, then they are more likely to purchase sooner,
which would increase demand for the product. For example, if people are expecting the price of a laptop
to fall then they will delay their purchase till the price lowers.
Ex) 1. Right (tastes and fref) 2. Right (income) 3. Left (complement)
4. Right(complement)
The law of supply

The graph is the supply curve, as you see, we can know the price and supply has direct
relationship. Higher price leads to higher quantity supplies
Lower price leads to lower quantity supplies

Determinants of supply
Aside from the change in price, there are other factors that can change the supply of certain
goods. There are 4 determinants. Which are
1. Number of sellers - If there are many sellers who are willing to produce, more output will be
available in the market. On the contrary, if few sellers are willing to participate in the
production process, the supply diminishes.

2. Cost of production

3. Technology- Technological innovations and inventions tend to make it possible to produce

better quality and/or quantity of goods using the same resources. Therefore, the state of
technology can increase or decrease the supply of certain goods.

4. Government policies
Tax, encouraging small business

Example
1. S-Right (cost of production)
2. S-Left (government policy)
3. S-Right (cost of production)
4. S-Right (technology)
5. S-Left (cost of production)

Surplus and shortage

Surplus is experienced when the price of good is above equilibrium point.

This means quantity supplied in the market exceeds its quantity demanded.

Shortage occurs when quantity demanded exceeds the quantity supplied.

This happens when the price is below equilibrium level.