ECONOMICS

WHAT IS MARKET?

 market is a place where buyers and sellers can meet to facilitate the exchange or
transaction of goods and services.
 Markets can be physical like a retail outlet, or virtual like an e-retailer.
 Other examples include illegal markets, auction markets, and financial markets.
 Markets establish the prices of goods and services that are determined by supply and
demand.
 Features of a market include the availability of an arena, buyers and sellers, and a
commodity.

GOODS MARKET
-Ito ay nangunguhulugang isang pamilihan ng mga pamproduksyon na ginagamit ng
mga bahay kalakal upang sila ay makalikha ng panibagong produkto o serbisyo.
LABOR MARKET
- Definition: A labour market is the place where workers and employees interact with each other.
In the labour market, employers compete to hire the best, and the workers compete for the best
satisfying job.

Description: A labour market in an economy functions with demand and supply of labour. In this
market, labour demand is the firm's demand for labour and supply is the worker's supply of
labour. The supply and demand of labour in the market is influenced by changes in the
bargaining power.

FINANCIAL MARKET

 Financial markets refer broadly to any marketplace where the trading of securities occurs.
 There are many kinds of financial markets, including (but not limited to) forex, money,
stock, and bond markets.
 These markets may include assets or securities that are either listed on regulated
exchanges or else trade over-the-counter (OTC).
 Financial markets trade in all types of securities and are critical to the smooth operation
of a capitalist society.
 When financial markets fail, economic disruption including recession and unemployment
can result.

WHY IS MARKET IMPORTANT?

-Markets are important. They are the mechanism through which shares in companies are bought
and sold, and they give businesses access to cash. Markets are critical in price formation,
liquidity transformation and allowing firms to service the needs of their clients.

WHAT IS DEMAND?

Demand is an economic concept that relates to a consumer's desire to purchase goods and
services and willingness to pay a specific price for them. An increase in the price of a good or
service tends to decrease the quantity demanded. Likewise, a decrease in the price of a good or
service will increase the quantity demanded.

DEMAND FUNCTION

-Demand function is what describes a relationship between one variable and its determinants. It
describes how much quantity of goods is purchased at alternative prices of good and related
goods, alternative income levels, and alternative values of other variables affecting demand.

-A demand functions creates a relationship between the demand (in quantities) of a product (which is a
dependent variable) and factors that affect the demand such as the price of the product, the price
of substitute and complementary goods, average income, etc., (which are the independent variables).

Eq 1.

Qd= f(p)

QD- dependent variable

P- independent variable

Eq 2.

Qd= a-bP

QD- quantity demand

P- presyo

A-intercept

B-slope

INCOME EFFECT

 The income effect describes how an increase in income can change the quantity of goods
that consumers will demand.
  For so-called normal goods, as income rises so does the demand for them (and vice-
versa).
 This is reflected in microeconomics via an upward shift in the downward-sloping demand
curve.
 This effect, however, can vary depending on the availability of substitutes and the good's
elasticity of demand.
 For inferior goods, the income effect dominates the substitution effect and leads
consumers to purchase more of a good, and less of substitute goods, when the price rises.

-The income effect is a part of consumer choice theory—which relates preferences to

consumption expenditures and consumer demand curves—that expresses how changes in
relative market prices and incomes impact consumption patterns for consumer goods and
services. For normal economic goods, when real consumer income rises, consumers will
demand a greater quantity of goods for purchase

SUBSTITUTION EFFECT

-The substitution effect is the decrease in sales for a product that can be attributed to consumers
switching to cheaper alternatives when its price rises. A product may lose market share for many
reasons, but the substitution effect is purely a reflection of frugality. If a brand raises its price,
some consumers will select a cheaper alternative. If beef prices rise, many consumers will eat
more chicken.

 The substitution effect is the decrease in sales for a product that can be attributed to
consumers switching to cheaper alternatives when its price rises.
 When the price of a product or service increases but the buyer's income stays the same,
the substitution effect generally kicks in.
 The substitution effect is strongest for products that are close substitutes.
 An increase in consumer spending power can offset the substitution effect.

CETERIS PARIBUS

-This commonly-used phrase stands for 'all other things being unchanged or constant'. It is used
in economics to rule out the possibility of 'other' factors changing, i.e. the specific causal relation
between two variables is focused.

-In the fields of economics and finance, ceteris paribus is often used when making arguments
about cause and effect. An economist might say raising the minimum
wage increases unemployment, increasing the supply of money causes inflation,
reducing marginal costs boosts economic profits for a company, or establishing rent control laws
in a city causes the supply of available housing to decrease. Of course, these outcomes can be
influenced by a variety of factors, but using ceteris paribus allows all other factors to remain
constant, focusing on the impact of only one.

-Suppose that you wanted to explain the price of milk. With a little thought, it becomes apparent
that milk costs are influenced by numerous things: the availability of cows, their health, the costs
of feeding cows, the amount of useful land, the costs of possible milk substitutes, the number of
milk suppliers, the level of inflation in the economy, consumer preferences, transportation, and
many other variables. So an economist instead applies ceteris paribus, which essentially says if
all other factors remain constant, a reduction in the supply of milk-producing cows, for example,
causes the price of milk to rise.

WHAT ARE THE NON PRICE DETERMINANTS OF DEMAND

-Non-price determinants of demand refer to factors other than the current price that can
potentially influence the need for a service or product, resulting in a shift in its demand curve. In
other words, these factors are very crucial economically as they can impact the demand for a
service or product, irrespective of its current price.

*income decreases

*taste

*price of related goods

*number of consumers

WHAT DOES SHIFT OF THE DEMAND CURVE MEANS?

- A shift in the demand curve occurs when a determinant of demand other than price changes. It
occurs when demand for goods and services changes even though the price didn't.
- According to the law of demand, the quantity demanded of a good increases or decreases based on a
decrease or increase in its price. A shift in the demand curve is the unusual circumstance when the price
remains the same but at least one of the other five determinants of demand change. Those determinants
are:1

1. Income of the buyers

2. Consumer trends and tastes
3. Expectations of future price, supply, and needs
4. The price of related goods. These can be substitutes, such as beef versus chicken. They
can also be complementary, such as beef and Worcestershire sauce.
5. The number of potential buyers (applies to aggregate demand only)

A shift in the demand curve for an item has both short-term and long-term impact on its price
and quantity demanded. For example, when incomes rise, people can buy more of everything
they want. In the short-term, the price will remain the same, and the quantity sold will increase.
The same effect occurs if consumer trends or tastes change. If people switch to electric vehicles,
they will buy less gas even if the price of gas remains the same.

- Demand Curve Shifts Left

The demand curve shifts to the left if the determinant causes demand to drop. That means less of
the good or service is demanded. That happens during a recession when buyers' incomes drop.
They will buy less of everything, even though the price is the same.

- Demand Curve Shifts Right

The curve shifts to the right if the determinant causes demand to increase. This means more of
the good or service are demanded even though there's no change in price. When the economy is
booming, buyers' incomes will rise. They'll buy more of everything, even though the price hasn't
changed. 

- Why is the demand curve downward sloping?

The demand curve slopes downward because more consumers would be willing or able to afford
goods or services the closer their prices get to $0. This is the basic law of demand. As the price
drops, it becomes easier to entice consumers to try a good or service. That's why coupons and
free trial promotions work so well at attracting new customers.

WHAT IS SUPPLY?

- Supply is a fundamental economic concept that describes the total amount of a specific good or
service that is available to consumers. Supply can relate to the amount available at a specific
price or the amount available across a range of prices if displayed on a graph. This relates closely
to the demand for a good or service at a specific price; all else being equal, the supply provided
by producers will rise if the price rises because all firms look to maximize profits.

 Supply is the basic economic concept that describes the total amount of a specific good
provided to the market for consumption.
 Supply is heavily correlated to demand, and the two concepts are intertwined to create
market equilibrium which defines the availability of goods in the market and the prices
they are sold for.
 Supply is graphically depicted, and the supply curve maps the relationship between price
and quantity by being shown as an upward-sloping line.
 Supply is determined by market demand, cost constraints, consumer preferences, and
government policy.
 Supply is often broken into short-term and long-term supply, though there are other types
of supply.

WHAT ARE THE PRICE NON DETERMINANTS OF SUPPLY?

 1. - Changes in costs of factors of production (land, labour, capital, entrepreneurship). As
there is an increase in costs of production → the supply shifts to the left, meaning there
would be less supply, or in other words you would have to pay more for the same
quantity.
2. State of technology, as technology Improves- supply shifts to the right (meaning more
supply for cheaper prices)
3. Price of related goods: An increase in the price of a related good can influence the supply
of the original good. Consider the tradeoff in the production of corn and wheat. If the
price of corn rises relative to the price of wheat, it would probably be profitable to move
resources from wheat production to corn production. This will cause the supply curve of
corn to shift to the right and the supply curve of wheat to shift to the left.
4. Future expectations: if demand for the product is likely to rise, companies increase 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.)
5. 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.
6. Size of the market: more firms producing the same or a very similar good means more
supply overall, therefore supply of the market shifts to the right as more are being
supplied at each price level.
7. Weather/seasonality: Affecting mostly agriculture, long periods of rain or drought can
influence the quantities of crop received at the end. As well as during winter seasons
many countries aren't able to grow their own crops/vegetables-decreasing supply.
8. Supply Shock: An unexpected event(political or environmental) that changes the supply
of a product or commodity, resulting in a sudden change in its price and it's effect is
almost always negative 

- A shift in supply could be caused by:

supply shock:A sudden political or environmental situation may change the supply of currency.
government intervention: in different situations governments could impose a different exchange
rate causing a shift in the market of a currency.

future expectation: if there's a serious depreciation expected in a currency in relation to another,

the country/government might take measures to prevent that from happening.

WHAT DOES SHIFT OF THE SUPPLY CURVE MEANS

- Shift in Supply Curve

When the supply curve shifts, the quantity supplied of a product will change at every price level.
This is referred to as a sideward shift in the supply curve.

Thus, depending on the direction in which the quantity of the product/service supplied changes,
the supply curve will shift either rightward or leftward. This occurs because the quantity changes
at each given price level. As the quantity supplied is drawn as a function of price, only a change
in the non-price factors would result in a sideward shift.

-Rightward shift in supply curve

If the quantity of the product/service supplied at each price level increases due to economic
factors other than price, the respective supply curve would shift rightward. For a visual example
of a rightward shift of the supply curve, refer to Figure 1 below, where S1 is the initial position of
the supply curve, S2 is the position of the supply curve after the rightward shift. Note that, D
marks the demand curve, E1 is the initial point of equilibrium, and E2 is the equilibrium after the
shift.

- Leftward Shift in Supply Curve

If the quantity of a product/service supplied at each price level decreases due to economic factors
other than price, the respective supply curve would shift leftward. To see what a leftward shift of
the supply curve would look like on a graph, refer to Figure 2, provided below, where S1 is the
initial position of the supply curve, S2 is the position of the supply curve after the shift. Note that,
D represents the demand curve, E1 is the initial equilibrium, and E2 is the equilibrium after the
shift.