Leanzy Jenel Osunero March 3,2022

Bsba FM 2-5 Mr. Oliver O. Romallosa

1. The Law of Demand and Supply  

 Law of Demand and its related terms and concepts: Basic concepts of demand" non-price
determinants in demand elasticity of demand, shifts in demand

The law of demand is a theory of economics that determines the demand for goods at a specific
price. It asserts that the price of an item has an inverse connection with the amount desired. When
adopting this economic concept, economists believe that only price changes would affect demand,
and that all other factors will remain constant.

Non-price determinants in demand are essential because they can affect the number of units sold
of items and services regardless of their pricing. For example, if non-price variables are driving
higher demand yet prices are extremely high, purchasers are likely to hunt for alternate items.
These variables will affect demand for products and services, but only within particular price
ranges that are acceptable.

 Income: As income grows, so does demand for ordinary items, shifting the demand
curve to the right. However, demand for inferior commodities frequently decreases,
causing the demand curve to move to the left.
 Consumer expectations of future: When customers expect the price of a certain item
to reduce in the future, demand will fall in the present and rise when the price drops,
and vice versa.
 Consumer Preferences & Tastes: When consumers modify their preferences in favor
of something (for example, an advertising campaign), the demand curve swings to
the right.
 Price of related goods (substitutes and complements): As price of substitutes
increases (movement along the curve) the demand shifts to the right. 
As price of complements increases (movement along the curve) the demand shifts to
the left.
 Demographic changes: as the population rises, so will the demand for most things,
shifting demand curves to the right as more is required at each price level.
 Weather and seasons: as a country enters a rainy season, the demand for umbrellas
rises.

The elasticity of demand describes how sensitive a good's demand is to changes in other
economic parameters such as price or income. It assists businesses in forecasting changes in
demand based on a variety of factors such as pricing adjustments and the market introduction of
competitor goods.

A shift in demand indicates that the amount of demand will be different at any price (and at every
price) than it was previously. Changes in preferences, population, income, pricing of replacement
or complement items, and expectations about future circumstances and prices are all factors that
can affect the demand curve for goods and services, causing a different amount to be wanted at
any given price.

The law of supply is a microeconomic law that asserts that, all else being equal, when the price of
an item or service rises, so will the amount of goods or services offered by providers, and vice
versa. According to the rule of supply, when the price of an item rises, suppliers will try to
maximize their earnings by increasing the quantity of goods for sale. For example, the company
pays time and a half for your overtime, you increase the amount of hours you are willing to work.

Non-price determinants of supply include resource (input) pricing, technology, taxes and
subsidies, prices of related items, and the market's seller count.

 Changes in the costs of factors in production (land, labor, capital, entrepreneurship).

As manufacturing costs rise, supply shifts to the left, implying that there will be less
supply, or that you will have to pay more for the same quantity.
 The state of technology, as technology improves, supply shifts to the right (meaning
more supply for cheaper prices)
 Price of related goods: An increase in the price of a related good can affect the supply
of the original good. Consider the tradeoff in corn and wheat output. If the price of
corn rises relative to the price of wheat, shifting resources from wheat production to
corn production would most likely be advantageous. This will cause the corn supply
curve to move to the right and the wheat supply curve to shift to the left.
 Future expectations: if the product's demand is expected to rise, corporations raise
their supply (in order to be ready to supply more in the future and gain higher profit
for example prior Christmas there would be an increased production of decorations.)
 Government intervention: 

o Indirect taxes → increase costs → supply shifts left (less supply, increase in
price)
o Subsidies → reduce costs → supply shifts right (more supply, cheaper price)
o other ways to intervene -exchange and interest rates.
 Size of the market: more businesses producing the same or very comparable item
equals greater supply overall, hence market supply swings to the right as more are
provided at each price level.
 Weather/seasonality: Affecting mostly agriculture, extended periods of rain or
drought can have an impact on the amount of crop harvested at the end. Furthermore,
many nations are unable to cultivate their own crops/vegetables during the winter
season, resulting in a decrease in availability.
 Supply Shock: An unexpected incident (political or environmental) that affects the
supply of a product or commodity, resulting in a quick shift in its price, with nearly
invariably a negative consequence.

Supply elasticity is a measure of how sensitive an industry or manufacturer is to changes in

demand for its product. Considerations include critical resource availability, technical innovation,
and the number of competitors selling a product or service.

A change in supply creates a shift in the supply curve, resulting in a market imbalance that is
addressed by altering pricing and demand. A rise in the rate of change in supply changes the
supply curve to the right, while a fall in the rate of change in supply shifts the supply curve to the
left.
2. Theory of Consumer Behavior  
 Many distinct aspects impact consumer behavior. A marketer should make an effort to
comprehend the elements that drive consumer behavior
 Psychological Factors: Consumer behavior is heavily influenced by human psychology.
These characteristics are difficult to quantify but have the potential to impact a
purchasing decision.

Some of the most essential psychological elements are as follows:

o Motivation
When a person is sufficiently motivated, it effects the individual's purchasing
behavior. A person has various needs, including social, fundamental, and security
requirements, as well as esteem and self-actualization wants. Among all of these
demands, basic necessities and security needs take precedence over all others. As a
result, basic necessities and security needs have the ability to inspire a customer to
purchase goods and services.

o Perception
Consumer perception is the process through which a customer gathers information
about a product and interprets that information to construct a meaningful image of
that thing. When a customer reads commercials, promotions, customer reviews,
social media comments, and so on about a product, they form an opinion about it. As
a result, customer perception has a significant impact on consumer purchasing
decisions.

o Learning
The learning of a customer is dependent on his or her abilities and expertise. While a
talent may be developed via practice, knowledge can only be obtained through
experience. Learning can be conditional or cognitive in nature. Conditional learning
is repeatedly exposing a customer to a circumstance, causing the consumer to build a
reaction to it. The customer will use his knowledge and abilities to obtain satisfaction
and a solution from the product he purchases through cognitive learning.

o Attitudes and Beliefs

Marketers work hard to understand customer attitudes in order to build effective
marketing efforts. Based on this attitude, the customer responds in a specific way
toward a product, and this plays a vital role in developing a product's brand image.
Consumers have attitudes and ideas that impact their purchasing decisions.

 Social Factor: Humans are social beings who are surrounded by numerous individuals
who impact their purchasing habits. People attempt to emulate other humans while also
wishing to be socially acceptable in society. As a result, their purchasing behavior is
impacted by others around them. These are referred to as social factors. Some of the
social elements are as follows:
 Family
A person's purchasing habit is heavily influenced by his or her family. A person's
tastes are formed as a youngster by witnessing his family buy things, and they
continue to buy the same products as they grow older.
  Reference Group
A reference group is a group of persons with whom a person is acquainted. In
general, all of the members in the reference group share similar purchasing habits
and affect one another.

 Roles and Status

The role that a person plays in society has an impact on him. If a person is in a
high position, his purchasing habit will be heavily impacted by his position. A
Chief Executive Officer at a firm will buy based on his standing, however a staff
or employee in the same company will have a distinct buying pattern.

 Cultural Factor: A collection of individuals is connected with a set of beliefs and ideals
that are exclusive to a community. When a person originates from a certain community,
the culture associated with that group has a strong impact on his or her conduct. Some of
the cultural variables are as follows:
 Culture
Cultural factors have a significant impact on consumer purchasing behavior.
Cultural Factors are the fundamental beliefs, needs, desires, preferences,
perceptions, and behaviors that a consumer observes and learns from their close
family members and other key individuals in their lives.

 Subculture
There are several subcultures within a cultural group. These subcultural
groupings hold similar views and values. People from various religions, castes,
regions, and ethnicities can form subcultures. These subcultures constitute a
client niche in and of themselves.

 Social Class
Every civilization on the planet has some type of social class. The social class is
defined not just by wealth, but also by employment, family history, education,
and dwelling area. Consumer behavior is influenced by social class.

 Personal Factor: Consumers' purchasing decisions are influenced by personal factors.

These personal variables vary from person to person, resulting in varying views and
consumer behavior.

Some of the personal aspects are as follows:

 Age
Age is a significant element that determines purchasing behavior. The purchasing
habits of young individuals differ from those of middle-aged persons. The
purchasing habits of the elderly are vastly different. Teenagers will be more
interested in purchasing brightly colored clothing and cosmetic items. Middle-
aged people are concerned about the family's home, property, and automobile.

 Income
A person's purchasing habit might be influenced by their income. Consumers
with greater incomes have more purchasing power. When a consumer has more
discretionary money, he or she has more opportunities to spend on lavish things.
Whereas low- and middle-income customers spend the majority of their income
on necessities such as groceries and clothing.
  Occupation
A consumer's occupation effects his or her purchasing habits. A person prefers to
acquire items that are related to his or her work. A doctor, for example, will buy
clothes in accordance with his or her occupation, but a professor will have a
different purchasing pattern.

 Lifestyle
A lifestyle is an attitude and a way of life that an individual maintains in society.
A consumer's lifestyle has a significant impact on their purchasing habits. When
a customer follows a healthy lifestyle, for example, the things he purchases will
be related to healthy alternatives to junk food.

In marketing, utility refers to how a product might be beneficial to customers in such a manner that they
are persuaded to buy it. The concept of marketing utility holds that the greatest method to sell a product to
a consumer is to show them how the product may add value to their lives.

 Form of Utility: The first kind of utility is a subset of utility. Form utility occurs
when utility is produced as a result of a change in the form or structure of an
existing substance.
For example: toys made of clay
 Place Utility: Place utility is the second form of utility. Place utility occurs when
the usefulness of a commodity increases as a result of a change in its location.
For example: woolen clothes have more utility in cold places than in hot places.
 Service Utility: When a large number of specialists provide personal services,
service utility emerges.
For example: services of architects, engineers, teachers
 Knowledge Utility: Knowledge is another sort of benefit. Information utility
occurs when a consumer gains knowledge about a certain product.
For example, the utility of a mobile phone or a computer increases when a person
understands its different functions.
 Possession Utility: When ownership of commodities is transferred from one
person to another, possession utility occurs.
For example, transfer of goods from the sellers to the buyers.
 Time Utility: When the utility of a commodity increases with a change in its
period of usage, this is referred to as time utility. When products are held and
utilized in times of absence, such as a blood bank, temporal utility is also
followed.
For example, a student has more utility for textbooks during examination than in
vacations. Time utility is also observed when goods are stored and used at a time
of scarcity. like blood bank