ES6 – ENGINEERING ECONOMICS

LESSON: LAW OF SUPPLY AND DEMAND

  The law of demand is a fundamental principle
of economics which states that at a higher
price consumers will demand a lower quantity
of a good.
Demand

 Consumers buy more of a good when its price

decreases and less when its price increases.
Unit Price
 The demand is inversely proportional to the
Demand – Price Relationship
unit price.
1. Changes in Income (The income effect)
 The income effect describes how the change in the price of a good can change
the quantity that consumers will demand of that good and related goods, based
on how the price change affects their real income.
2. Prices or Availability of Substitutes (Substitution Effect)

 A substitute is a good that can be used in place of another.

VS
2. Prices or Availability of Complementary Goods
 Complementary goods are things that are often sold or used together.
4. Change in the market trend and number of buyers.
 More people (buyers), more sales.
5. Changes in tastes and preferences.

VS
  Supply is the amount of goods that
sellers are willing to sell at the price
where they can obtain profit.

Supply
 The supply is directly proportional to the
unit price, because the seller is more
willing to supply at a higher price
because they will earn extra profit.
Unit Price

Supply – Price Relationship

 Market is a place where buyers and sellers interact.
 Trade is a basic economic concept involving the buying and selling of goods
and services, with compensation paid by a buyer to a seller, or the exchange of
goods or services between parties
 SCENARIO NO. 1 MARKET

Before COVID
December 2019

Quantity

EQ. Point

DEMAND (Buyers) SUPPLY (Sellers)

Unit Price
Php 100 (ave price prior to pandemic)
 SCENARIO NO. 2 MARKET

Lockdown and ECQ

(starting February 2020)

Quantity

EQ. Point

DEMAND (Buyers) SUPPLY (Sellers)

Unit Price
Php 100 Php 800
 SCENARIO NO. 3 MARKET

After Lockdown

Quantity
EQ. Point

DEMAND (Buyers) SUPPLY (Sellers)

Unit Price
Php 150 Php 800
 SCENARIO NO. 4 MARKET

New Normal

Quantity
EQ. Point

DEMAND (Buyers) SUPPLY (Sellers)

Unit Price

Php 50
E N D O F P R E S E N TAT I O N