Market forces – Demand and Supply (DS)

Review what was learned

Differentiate the following terminologies. For the factors affecting demand, enumerate the determinants
then provide an example in relation to the law of demand or supply. For equilibrium of DS, explain when
DS is in equilibrium then provide an example using a graph that shows equilibrium.

Demand Supply
Demand is the quantity of consumers who are  Supply is a fundamental economic concept that
willing and able to buy products at various prices describes the total amount of a specific good or
during a given period of time. service that is available to consumers.

Demand Schedule Supply Schedule

a demand schedule is a table that shows the A supply schedule is a table that shows the quantity
quantity demanded of a good or service at supplied at each price.
different price levels.

Demand curve Supply curve

demand curve, in economics, a graphic
representation of the relationship between
product price and the quantity of the product
demanded. It is drawn with price on the vertical
axis of the graph and quantity demanded on the
horizontal axis.
The supply curve is a graphic representation of the
correlation between the cost of a good or service and
the quantity supplied for a given period. In a typical
illustration, the price will appear on the left vertical
axis, while the quantity supplied will appear on the
horizontal axis.

Law of Demand Law of Supply

The law of demand is a fundamental principle of
economics that states that at a higher price,
consumers will demand a lower quantity of a
good.
The law of supply is the microeconomic law that
states that, all other factors being equal, as the price
of a good or service increases, the quantity of goods
or services that suppliers offer will increase, and vice
versa.
 Factors affecting Demand (determinants)
1. Price of the Product
Example: Consumers want to buy more of a
product at a low price and less of a product at a
high price.
2. The Consumer's Income
Example: If the consumer has a higher income,
they will be able to afford to buy more product or
higher quality of product.
3. The Price of Related Goods
Example: Suppose the price of doughnuts were to
fall. Many people who drink coffee enjoy dunking
doughnuts in their coffee; the lower price of
doughnuts might therefore increase the demand
for coffee, shifting the demand curve for coffee to
the right.
4. The Tastes and Preferences of Consumers
Example: If an influencer endorses a new make-up,
then there will be an increase of demand
5. The Consumer's Expectations
Example:
If you expect that the rice will go up in price
tomorrow then you will stock up on rice today.
Factors affecting Supply (determinants)
1. Weather
Example: If there is a flood or drought that damages
the crops, there will a decrease in supply.
2. Technological improvements
Example: Technology advances can improve
production efficiency and therefore cut down the
cost spent for production. Computers, televisions and
photographic equipment are good examples of the
effects of technology on the supply curve. A huge
computer that used to cost several thousand dollars
can now be purchased for a few hundred dollars with
such improvement in storage and processor. In this
case, the supply for the computer in the present day
would be much higher than that of the past.
3. Related supply
Example: If there is an increase in the supply of beef
(from cows) then there will also be an increase in the
supply of leather.
4. More Suppliers
Example: More factories producing donuts, then there
will be an increase of supply of donuts.
5. Costs of production
Example: If the cost of production increases, the
supply of products would shrink so as to save
resources. For example, due to the high wages rate of
labor, poor natural conditions such as crop failure as
well as the increase in raw materials price, taxes,
transportation cost, the cost of production is raised. In
this case, managers of the company would either
supply a smaller quantity of product to the market or
stock the product till the market price is exceeded.
 Equilibrium of Supply and Demand
Equilibrium is the state in which market supply and demand balance each other, and as a result prices
become stable. Generally, an over-supply of goods or services causes prices to go down, which results in
higher demand—while an under-supply or shortage causes prices to go up resulting in less demand.

Elasticity of Demand Elasticity of Supply

Elastic: Elastic:
Measures how the quantity demanded changes A measure used in economics to show the
with price. A measure of how much the quantity responsiveness. The quantity supplied of a good or
demanded will change if another factor changes. service to a change in its price.

Inelastic: Inelastic:
A situation in which the demand for a product A market situation in which any increase or decrease
doesn't change with with fall or rise of it's price. in the price of a good or service does not result in a
corresponding increase or decrease in its supply.
Unit elastic: When the change in how much is Unit elastic:
demanded equals the change in price. When the quantity supplied equals the change in
price.

Reflection:
What is the importance of demand and supply integration to business? Give three reasons in bullet
form. (hint: significance of DS to business and managers )

1. Increased adaptability to demand volatility

2. More efficient and strategic resource allocation

3. Focus on profitability
References:

LRC references: Indicate the title, author’s name and publisher also the website link. You may use your old
notes.

Printed Books E-books Journals/ articles

Others: outside LRC references

Books E-books Journals/ articles

Website/s:
DEMAND- What is demand? . (n.d.). Retrieved September 20, 2022, from https://www.business-
standard.com/about/what-is-demand#collapse
SUPPLY- Supply. (2021b, June 29). Investopedia. Retrieved September 20, 2022, from
https://www.investopedia.com/terms/s/supply.asp#:%7E:text=What%20Is%20Supply%3F,if
%20displayed%20on%20a%20graph.
DEMAND SCHEDULE- Frankenfield, J. (2020, November 24). Demand Schedule. Investopedia. Retrieved
September 20, 2022, from https://www.investopedia.com/terms/d/demand-schedule.asp#:~:text=In
%20economics%2C%20a%20demand%20schedule,the%20X%2Daxis%20represents%20quantity.
SUPPLY SCHEDULE- Law of supply (article) | Supply. (n.d.). Khan Academy. Retrieved September 20,
2022, from https://www.khanacademy.org/economics-finance-domain/microeconomics/supply-
demand-equilibrium/supply-curve-tutorial/a/law-of-supply
DEMAND CURVE- Demand curve. (n.d.). Britannica. Retrieved September 20, 2022, from
https://www.britannica.com/topic/demand-curve
SUPPLY CURVE- Kenton, W. (2022, May 30). Supply Curve. Investopedia. Retrieved September 20, 2022,
from https://www.investopedia.com/terms/s/supply-curve.asp#:~:text=The%20supply%20curve%20is
%20a,appear%20on%20the%20horizontal%20axis.
LAW OF DEMAND- Hayes, A. (2022, January 8). Law of Demand. Investopedia. Retrieved September 20,
2022, from https://www.investopedia.com/terms/l/lawofdemand.asp#:~:text=The%20law%20of
%20demand%20is%20a%20fundamental%20principle%20of%20economics,their%20most%20urgent
%20needs%20first.
LAW OF SUPPLY- Law of Supply. (2022, August 1). Investopedia. Retrieved September 20, 2022, from
https://www.investopedia.com/terms/l/lawofsupply.asp#:~:text=our%20editorial%20policies-,What
%20Is%20the%20Law%20of%20Supply%3F,will%20increase%2C%20and%20vice%20versa.
FACTORS AFFECTING DEMAND- Factors Affecting Demand. (n.d.). Econport. Retrieved September 20,
2022, from http://www.econport.org/content/handbook/Demand/Factors.html
Saylor Academy. (n.d.). Demand: Prices of Related Goods and Services. Retrieved September 20, 2022,
from https://learn.saylor.org/mod/book/view.php?id=31055&chapterid=7142#:%7E:text=Suppose
%20the%20price%20of%20doughnuts,for%20coffee%20to%20the%20right.
FACTORS AFFECTING SUPPLY- Pettinger, T. (2019, November 28). Factors affecting Supply. Economics
Help. Retrieved September 20, 2022, from
https://www.economicshelp.org/microessays/equilibrium/supply/#:~:text=Supply%20refers%20to
%20the%20quantity,workers%20to%20produce%20the%20good.
EQUILIBRIUM OF SUPPLY AND DEMAND- Chen, J. (2022, May 31). Equilibrium Price: Definition, Types,
Example, and How to Calculate. Investopedia. Retrieved September 20, 2022, from
https://www.investopedia.com/terms/e/equilibrium.asp#:~:text=Equilibrium%20is%20the%20state
%20in,up%20resulting%20in%20less%20demand.
ELASSTICITY OF DEMAND- Elasticity. (n.d.). Economics. Retrieved September 20, 2022, from
https://fargosoutheconomics.weebly.com/elasticity.html
ELASSTICITY OF SUPPLY- Elasticity. (n.d.). Economics. Retrieved September 20, 2022, from
https://fargosoutheconomics.weebly.com/elasticity.html