Demand

• Is an economic principle that refers to a consumer’s desire and willingness to pay for a specific
good or service.

• Quantity demanded of a product or service is the number that would be bought by the public at
a given price.

• It is the relationship between the quantities of a good or service consumers will purchase and
the price charged for that good.

• Is a schedule or a curve showing the various amounts of a product consumers are willing and
able to purchase at each of a series of possible prices during a specified period of time.

• Demand schedule is a table that shows the relationship between product prices and quantity
demanded.

Table 1

Price Quantity
Demanded
Php 140 100
Php 110 200
Php 80 300
Php 50 400
Php 20 500

Demand Curve

• Is simply a demand schedule presented in graphical form. It shows the quantity demanded at
different prices.

• Demand curves are drawn as “downward sloping” due to this inverse relationship between
price and quantity demanded there has a movement along the curve.

• The X-axis represents the quantity buyers who are willing and able to pay at a given price.
 • The Y-axis represents the maximum price the buyers are willing to pay for a given unit.

Demand Schedule › Demand Curve

A Change (Shift) in Demand

If one of 5 other factors changes, the entire demand curve will shift to the left or right
The curve does NOT shift if the price of the good is the only change

A Change in Quantity Demanded (Graph)

A Change (Shift) in Demand

INDIVIDUAL DEMAND

• Is the demand of an individual or any entity considered as one. It is the quantity of a good that a
specific consumer would purchase at a specific price point at a specific point in time.

• It is the demand of one individual or firm.

• While the term is somewhat vague, individual demand can be represented by the point of view
of one person, a single family, or a single household.

MARKET DEMAND

• Supports the total quantity demanded by all consumers. It is an important economic indicator
because it displays the one’s market competitiveness, a

purchaser’s willingness to

buy certain products, and

ability to an entity to leverage in a competitive environment. If market demand is low, it

signals to a company that they should lay-off a product or service or consider redesigning it.

• provides the total quantity demanded by all consumers. In other words, it represents the
aggregate of all individual demands. 
 Table 2

Price QTY DEMAND ED Total

Per First Second Third Quantity

Bushel buyer buyer buyer Demanded

PHP Per week

20 10 + 12 + 8 = 30

19 20 + 23 + 17 = 60

18 35 + 39 + 26 = 100

17 55 + 60 + 39 = 154

16 80 + 87 + 54 = 221

Two basic type of Market Demand

• Primary demand

is the total demand for all of the brands that represent a given product or service, such as all phones or
all high-end watches.

• Selective demand

is the demand for one particular brand of product or service, such as the iPhone or a Michele watch.

Law of Demand- All else equal, as price falls, the quantity demanded rises, and as price rises, the
corresponding quantity demanded falls.

Economists call this inverse relationship the law of demand.

In short, there is a negative or inverse relationship between price and quantity demanded.

The “other things equal” assumption is critical. Many factors other than the price of the product being
considered affect the amount purchased.

• The quantity of Nikes purchased will depend not only on the price of Nikes but also on the prices
of such substitutes as Reeboks, Adidas, and Filas. The law of demand in this case says that fewer
Nikes will be purchased if the prices of Nikes rises and the prices of Reeboks, Adidas, and Filas all
 remain constant. In short, if the relative price of Nikes increases, fewer Nikes will be bought.
However if the price of Nikes and all other competing shoes increase by some amount,
consumers might buy more, less, or the same amount of Nikes.

The Law of Demand

• When a good’s price is lower, consumers will buy more of it.

• When a good’s price is higher, consumers will buy less of it.

• The Law of Demand is affected by two

• The Substitution Effect

• The Income Effect

• The Substitution Effect

As the price for one good rises compared to a similar good, consumers will substitute the similar good
for their purchases.

* The Income Effect

As prices go up, your money becomes worth less than it was worth before , if this happen people are
less likely to buy the good.

The Foundation for the Law of Demand

1. Common sense and simple observation are consistent with the law of demand. People ordinarily do
but more of a product at a low price than at a higher price. Price is an obstacle which deters
consumers from buying. The higher this obstacle, the less of a product they will buy; the lower the
price obstacle, the more they will buy. The fact that businesses have “sales” is evidence of their belief
in the law of demand. Businesses reduce their inventories by lowering prices, not by raising them.

2. In any specific time period, each buyer of a product will derive less satisfaction ( or benefit or utility)
from each successive unit of the good consumed.

That is, consumption is subject to diminishing marginal utility, because successive units of a particular
product yield less and less marginal utility, consumers will buy additional units only if the price of
those units is reduced.

3. The law of demand can also explained in terms of income and substitution effects.

The income effect indicates that a lower price increases the purchasing power of a buyer’s money
income, enabling the buyer to purchase more of the product than she or he could buy before. A
higher price has the opposite effect.
The substitution effect suggests that at a lower price, buyers have the incentive to substitute the now
cheaper good for similar goods which are now relatively more expensive. Consumers tend to
substitute cheap products for dear products.

For example: A decline in the price of beef will increase the purchasing power of consumer incomes,
enabling them to buy more beef (the income effect).

At a lower price, beef is relatively more attractive and is substituted for pork, chicken, and fish (the
substitution effect). The income and substitution effects combine to make consumers able and willing
to buy more of a product at a low price than at a high price.

Determinants of Demand

1. Tastes – A favorable change in consumer tastes or preferences for a product, one which makes the
product more desirable means that more of it will be demanded. Demand will increase, the demand
will shift rightward.

An unfavorable change in consumer preference will decrease demand, shifting the demand curve to
the left.

2. Number of buyers – An increase in the number of consumers in a market increases demand.

3. Income - Higher income = higher demand

Lower income = lower demand

4. Prices of Related Goods – A change in the price of a related good may increase or decrease the
demand for a product, depending on whether the related good is a substitute or a complement.

Determinants of Demand

Substitutes

Beef and chicken are examples of substitute goods.

Complementary

Goods that are used together and are usually demanded together.

Unrelated

They are independent goods and change in the price of one has little or no impact on the demand on
the other.
5. Expectations - If consumers expect a price to rise in the future, current demand increases.

• If consumers expect a price to fall in the future, current demand decreases.

• 6. Population -When one sector of the population grows, demand increases for products that
sector uses.

• - Consider the fastest growing sector of the population today.

Supply

• A great English economist who came up with the idea of the law of demand and supply.
According to him, prices are set through the forces of demand and supply as same as the
cutting done by two blades of scissors. Just as you need two blades in order for the scissor to
function.
 • Is a schedule or curve showing the amounts of a product a producer is willing and able to
produce and make available for sale at each of a series of possible prices during a specific
period.

• In the goods market, supply is the amount of a product per unit of time that producers are
willing to sell at various given prices when all other factors are held constant.

• Difference between stock and supply: Stock is the total amount of the commodity available
with the producer. Supply is the only part of total stock which producers are willing to bring
into the market and offer sale at particular price.

Supply Schedule

• It is a table which shows how much one or more firms will be willing to supply at particular
prices under the existing circumstances.  

• Some of the more important factors affecting supply are the good's own price, the prices of
related goods, production costs, technology and expectations of sellers.

Price Quantity Supplied

Php 140 500

110 400

80 300

50 200

20 100

Supply Curve

• The relationship of price and supply curve. The curve is generally positively sloped. The curve
depicts the relationship between two variables only; price and quantity supplied. All other
factors affecting Supply are held constant. However, these factors are part of the supply
equation and are implicitly present in the constant term.

• They are drawn as “upward sloping” due to this positive relationship between price and
quantity supplied.
Supply Curve

Law of Supply

• As price rises, the corresponding quantity supplied rises; as price falls, the quantity supplied
falls.

• A supply schedule tells us that firms will produce and offer for sale more of their product at a
high price than at a low price.

• Determinants of Supply

1. Resource prices – The prices of resources used in the production process help determine the
costs of production incurred by firms.

2. Technique of production – Improvements in technology enable firms to produce units of

output with fewer resources.

Determinants of Supply

3. Taxes (Gov’t Policies and Regulations) – An increase in sales or property taxes will increase
production costs and reduce supply.

4. Prices of other goods – Any decline in the prices a particular goods increases the supply of a certain
goods.

5. Price expectations- Expectations about the future price of a product can affect the producer’s
current willingness to supply the product.
6. Number of sellers in the market- Other things equal, the larger the number of suppliers, the greater
the market supply. The smaller the number of firms in the industry, the less the market supply.

Price Floor

• Is the minimum market price set for a certain commodity established to prevent
manufacturers in instituting prices that would ruin the market economic system.

Table 3

Drawing a price floor is simple. Simply draw a straight, horizontal line at the price floor level. This
graph shows a price floor at $3.00. You'll notice that the price floor is above the equilibrium price,
which is $2.00 in this example.

• For instance, different rates of minimum wages are implemented in different geographic area
in accordance to the lifestyle of the household in the location. This is settled to assure that the
individuals are able to suffice one’s staple and afford provision of needs. When a city
establishes a wage lower than the minimum, the tendency is that businessmen would invest
more in that city because of lower cost of labor.

• Price floor is only an issue when they are set above market clearing price because once it is set
beyond the market price; there is a chance of excess (surplus).

• When it occurs, manufacturers might produce more quantity unknowingly, customers might
not buy those goods at the higher price, and thus, those goods will remain unsold.
Price Ceiling

• Is the minimum market price set for a certain commodity and services that is believed to be
sold at an unreasonable high price. It only becomes a problem when they are set below the
market equilibrium because there would be excess demand or a supply shortage.
Manufacturers won’t produce as much and consumers will demand more.

Equilibrium

• It refers to a situation in which the price has reached the level where quantity supplied equals
quantity demanded.

• Surplus exists when there is an excess in supply. In this case, suppliers should lower the price
to increase sales, thereby moving to the equilibrium.

• Shortage exists when there is an excess in demand. In this case, suppliers will increase the
price due to many buyers chasing few goods, thereby moving to the equilibrium.
Comparison of Price Floor ,Price Ceiling and Equilibrium
 Summary

• Demand and supply are the market forces that affect prices in the market. Demand represents
the standpoint of consumers while supply represents the standpoint of manufacturers.

• To better understand the concepts, we must also have an understanding of its law through
analyzing the schedule and its curve. Also, we must understand that there are other factors
affecting the quantity demanded and quantity supplied.

• We must also take into consideration the price ceilings and price floors established by law,
because it also affects our decision in settling with prices.

• Moreover, to compare supply and demand, and be able to suffice ones needs without any
excess, we must also understand their equilibrium relationship.