An Individual Reporting in ECON 201- MICROECONOMICS

CHAPTER 2: THE LAW OF SUPPLY AND DEMAND

TABLE 2.1
INTRODUCTION
HYPOTHETICAL MARKET DEMAND
The model of demand and supply that we shall develop in this chapter is one of the
SCHEDULE FOR COFFEE PER WEEK
most powerful tools in all economic analysis. You will be using it throughout your
study of economics. We shall see that the idea of demand and supply apply, Price of Coffee Quantity Demanded
(per kilo) (in kilos)
whatever the good or service being exchanged in the market. In this chapter, we
shall focus on buyers and sellers of goods and services. Php 45 100
40 150
OBJECTIVES 35 200
At the end of this chapter, you should be able to: 30 250
1. Differentiate between the demand and supply; 25 300
2. Show that demand and supply are the main forces that cause; 20 350
3. Identify supply and demand are increased or decreased; and
4. Distinguish between the concepts of the law of supply and demand. FIGURE 2.1
HYPOTHETICAL MARKET DEMAND CURVE
FOR ONE WEEK
DEMAND
 It is the quantity of a product that a buyer is willing and able to purchase at
a given price. 50
 It also reflects the consumer’s desire for a commodity. 45 DEMAND CURVE- connection of points
40
DEMAND SCHEDULE and DEMAND CURVE 35
Demand Schedule- is a table that shows the quantities of a good or service
30
demanded at different prices during a particular period, all other things unchanged.
Demand Curve- a graphical presentation of a demand schedule. 25
PLOTTED DEMAND SCHEDULE-
It shows the relationship between the price and quantity demanded of a good or 20 Points plotted
service. 15
a. From our daily experience of buying and selling, we know that higher prices
10
influence people to buy less.
b. Therefore, the demand function shows how the quantity demanded of a 5

particular good responds to price change. 0

100 150 200 250 300 350
c. In addition, the demand schedule must specify the time period during which
the quantities will be bought.
Prepared by: RENATO BUIZON BOQUIL JR. DHRT II BLOCK 2
Presented to: Ms. ROWENA JULATON MARAMBA
An Individual Reporting in ECON 201- MICROECONOMICS
The Table 2.1 shows that at lower prices of coffee, people get attracted to buy
more.

The normal demand curve slopes downward from left to right. Any point on the
demand curve reflects the quantity that will be bought at the given price.

THE LAW OF DEMAND

It states that: “when the price is high the quantity demanded is low” (vice versa).
 The higher the price, the lower quantity demanded. Remember
 The amount of 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. Shift- changes entirely the curve
 As a result, people will naturally avoid buying a product that will force them Demand Curve- has a negative slope
to forgo the consumption of something else they value more. 1. Income Effect- real income
a. Price High- worse off
CHANGES IN QUANTITY DEMANDED AND MOVEMENTS ALONG THE b. Price Low- better off
DEMAND CURVE 2. Substitution Effect
This is a movement from point to point along the demand curve and is described as Parameters- non-price factors of demand
a change in quantity demanded.
FORMULA:
(Looking back at Figure 2.1, the consumers are willing to buy 250 kilos of Coffee
when price is Php 30.00. A drop in the price to Php 25.00 will, however, attract the Qd =f ( P ,TP , I , EPC , PRG)
consumers to increase their purchases to 300 kilos). Qd =f ( P) Quantity demanded is the function of price

CETERIS PARIBUS ASSUMPTION

This is the functional relationship between price and quantity demanded is essential
since these non-price factors are assumed as constant.
Factors Influence Quantity Demand
 Population
 Income
 Taste and preferences
 Expectation of Price Changes
 Pieces of Related goods
The Law of Demand now states, “Assuming other things constant, price and
quantity demanded are inversely proportional”.

Prepared by: RENATO BUIZON BOQUIL JR. DHRT II BLOCK 2

Presented to: Ms. ROWENA JULATON MARAMBA