Law of Supply,Demand, and

Utility
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date @September 26, 2023

Demand

is the quantity of a certain commodity that is bought at a certain price at given

place and time

It should not be confused with the quantity of the commodity which a person
desires to purchase.

Desire without actual purchase does not constitute demand

💡 Law of demand state that the demand for a commodity varies inversely as the
pprice of the commodity, though not proportionately

Elasticity of demand
Elastic demand

occurs when a decrease in selling price will cause a greater than proportionate
increase in volume of sales

Goods that are considered a luxury are considered to have elastic demand.

Inelastic demand

Occurs when a decrease in the selling price will cause a less than proportionate
increase in sales.

Goods that are classified as necessities usually have inelastic demand.

Law of Supply,Demand, and Utility 1

 Unitary elasticity of demand

Occurs when the mathematical product of price and volume of sales remain
constant regardless of change

Utility
Utility
The capacity of a commodity to satisfy human want. IF the utility of a certain
good to a certain individual is great, his demand for that good will be great

💡 The demand for a certain good varies directly as the utility

Law of diminishing Utility

An increase in the quantity of any good consumed or acquired by an

individual will decrease the amount of satisfaction derived from that good.

The utility of a commodity decreases with an increase in the quantity

available

💡 To increase the utility of any commodity, it should be different from

other similar commodities. Thus, manufacturers of similar goods vary
the style, the soze, and the use of the goods they manufacture

Marginal Utility

is the utility of the last unit of the same commodity which is consumed or
acquired.

The last unit of similar commodities consumed of acquired is called the

marginal unity

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 Supply
Supply

is the quantity of a certain commodity that is offered for sale at a certain

priice at a given place and time.

A merchant may have more goods in his/her/their wwarehouse, but if

he/she/they only wishes to sell a certain quantity, then that quantity
represents the supply

💡 Unless a certain good is actually offered for sale, it does not constitute
a part of the supply

The law of supply

The law of supply states that

💡 The supply of a commodity varies directly as the price of the

commodity

The Law of Supply and Demand

💡 When free competition exists, the price of a product will be that value
where supply is equal to the demand

Law of Diminishing Returns

This law was origianlly applied to agriculture, correlating the input of men,
fertilizers, and other variable factors to the output in crops or harvest.

The law states:

Law of Supply,Demand, and Utility 3

 💡 When one of the factors of production is fixed in quantity or is difficult to
increase, increasing the other factors of production will result in a less
than proportionate increase in output

Example:

Too much water in a plantation will drown the plants

Fuel-air ratio is needed to start the engine, as more fuel is fed, the power of
the engine will increase, but continued feeding will cause the engine to stop
Marginal Revenue and Marginal cost
Marginal revenue

is that amount received from the sale of an additional unit of a production

Marginal Cost

The additional cost of production of one more unit,

Physical and Economic Efficiency

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