PRELIM continuation…

#12 Lecture notes: (for lectures and discussions only)

Book references and suggested readings:
A. Economics. Campbell R. McConnel, Stanley C. Rue, Sean M. Flynn, and Randy Grant
Global Edition, New York, U.S.A., McGrowHill/Irwin, 2012
B. Economics 19th Edition by Paul A. Samuelson and William D. Nordhaus
Copright 2010, 2005,2001 by McGraw Hill Companies, Inc.
C. Economics for Consumer, Bernardo Villegas
4th Edition, 1983 Sinag-Tala Publishers, Inc., Manila, Philippines

DEMAND
Demand – is a schedule or a curve that shows the various amount of products consumers are willing to buy at each
possible prices during a specified period of time. It shows the quantities of a product purchased at different possible prices,
other things equal.

Demand curve

PRICES 20

15
The changes of price-quantity points within
the demand curve is called
10 change in quantity demanded or movement
along the demand curve

0 10 20 30 40 50
QUANTITY

Law of Demand
As Price decreases, the quantity demanded increases and as price increases, the quantity demanded decreases, other
things equal.
The inverse or negative relationship between price and quantity is known as Law of Demand.

Reasons behind the inverse relationship of price and quantity

1. People ordinarily purchase more of goods at a low price and purchase less when the price is high.
2. People consumption of goods is subject to the Law of Diminishing Returns that means a successive units of a
certain product yield a decreasing marginal utility or satisfaction in such a way that consumer purchases additional
units of goods only if the price of those units is progressively reduced.
3. Income effect- lower prices increases the pruchasing power of a consumer’s money income that allows them to
purchase more while higher prices decreases the consumer’ money income preventing them to purchase more.
Substitution effect says that a consumer will substitute a less expensive goods (lower price goods) to a relatively
more expensive goods (Higher price goods).

Price is the most important factor on the amount of product purchased by a consumer but there are other factors that affect
purchases. The other factors that affect purchases are called determinants of Demand which also referred to as demand
shifters.

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PRELIM continuation…
#13 Lecture notes: (for lectures and discussions only)
Book references and suggested readings:
A. Economics. Campbell R. McConnel, Stanley C. Rue, Sean M. Flynn, and Randy Grant
Global Edition, New York, U.S.A., McGrowHill/Irwin, 2012
B. Economics 19th Edition by Paul A. Samuelson and William D. Nordhaus
Copright 2010, 2005,2001 by McGraw Hill Companies, Inc.
C. Economics for Consumer, Bernardo Villegas
4th Edition, 1983 Sinag-Tala Publishers, Inc., Manila, Philippines

The shifts of Demand Curve is referred to as Change in Demand

PRICE (increase in demand)

Demand curve shifts upward right
Demand curve
Shifts downward left
(decrease in demand) D3
D1
D2

0 QUANTITY

Basic determinants of demand

1. Taste and preferences – a favorable change in taste and preference ona certain goods will increase demand of it
otherwise will decrease demand of it.
2. The number of buyers in the market – an increase in the number of buyers in a market will likely increase demand
and vice versa.
3. Consumer’s income – changes in income will either increases or decreases demand of a certain goods depending
whether the goods is normal goods or inferior gooods.
For superior goods or normal goods, if income increases the demand for superior goods also increases and vice
versa that means demand of goods varies directly with money income.
For inferior goods – when income increases the demand for inferior goods decreases and vice versa that means
demand of goods varies inversely with the money income.
4. Prices of related goods – changes in the prices of related goods either increases or decreases demand of a certain
goods depending whether the goods is a substitute goods or complementary goods.
Complementary goods – is a goods used together with another goods (jointly demanded). example sugar and
coffee: If the price of coffee increases, the demand for sugar decreases and vice versa that means there is an
inverse relationships between the price of goods A and quantity of goods B for complementary goods.
Substitute goods - goods that are used in place of another (substitutes in consumptions). Example: beef and pork, if
the price of beef increases, the demand for pork also increases and vice versa that means there is direct
relationship between the price of goods A and demand of goods B for substitutes goods
5. Consumer’s expectation – changes in consumers’ expectation change demands. If prices are expected to rise
consumer purchases more to beat the expected arrival of price increase.

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