Week 4-5 Demand and Supply

Terms to remember
Market- a place where buyers and sellers
interact and engage in exchange.
- is a mechanism through which
buyers and sellers meet to determine the
price and quantity of a good or service.

Goods market a. Wet Market

b. Dry Market
c. Labor market
Market is important
because throught it, a
person who excess goods
can dispose them and a
person who feels a need for
goods obtain them.
Terms to remember
Demand

Reflects the consumer’s desire for a

commodity.

It is the willingness of the consumer

to buy goods and services.
A demand function shows how the
quantities demanded of a good is
dependent on its determinants, the
most important of which is the price
of the goods itself.
Example: Mario wants to buy an apple. How will you
determing how many apple is Mario wants to buy?
Let’s say Mario found out that P 15.00 is the cost of
each of the apple. Then this is the time how many
apples Mario wants to buy which is 30pcs.
Price (P) Quantity Demand (Qd)
15 30
 Demand Schedule shows the
different quantities that will be
bought of a good in a given various
prices.

It is a presentation that shows the

relationship of price to quantity
demand.
Demand Schedule of Apple per Day in Maysan Market

Price of Apple Quantity Demanded

5 50
10 40
15 30
20 20
25 10

As the price increase, the quantity demand

in apple decreases.
Law of Demand
It states that if the price decreases the
quantity demand increases and if the
price increases the quantity demand
decreases
Inverse relationship: P↑Q↓ ; P↓Q↑

“ceteris paribus”
“Ceteris Paribus”

Is the assumption that only

PRICE has only effect in the
change of the DEMAND and
others factors has no effect.
Demand Curve
It is a graphical presentation on the
relationship of the PRICE and
QUANTITY DEMANDED.
Price of Apple Quantity Demanded
5 50
10 40
15 30
20 20
25 10
 Graphical Presentation of Hypothetical Market
Demand Schedule of Sugar per Day in Manila

Price of Quantity
25 Apple Demanded
PRICE OF APPLES

20 5 50
15 10 40
15 30
10
20 20
5 25 10

0 10 20 30 40 50
QUANTITY DEMANDED

DOWNWARD SLOPING as the PRICE increases the QUANTITY DEMAND

decreases. As the PRICE decreases the QUANTITY DEMAND increases.
 Demand Function
It is a mathematical and numerical
illustration on the relationship of the
PRICE and to the QUANTITY DEMAND.
Price of Quantity
Qd= a - b(P) Apple Demanded
5 50
Where: 10 40
Qd = Quantity Demanded 15 30
P = Price 20 20
a = intercept 25 10
b = slop
 Price of Quantity

Demand Function Apple

0
Demanded
60
Qd = a - b(P) 5 50
10
Qd = 60 – 2(10) 15 30
= 60 – 20 20
25 10
Qd = 40
Where:
Qd = a - b(P)
Qd = Quantity Demanded
Qd = 60 – 2(20)
P = Price = 60 – 40
a = intercept
b = slope Qd = 20
Qd = 750-10p
Quantity
Item Price
Demanded
1 ____ 600
2 30 ____
3 ____ 300
4 60 ____
5 _____ 0
Two Factors affecting the Demand
a. Price Factor
b. Non-Price Factor
1. Income
2. Number of buyers
3. Consumer’s taste and preference
4. Expectation on future prices
5. Price of related goods
b. Non-Price Factor
1. Income –
a. Inferior Goods –refers to low or less
value on the point of view of the
sellers compare to normale goods.
b. Normal Goods – common things that
sellers bought especially if they have
more money to purchase it.

Income
b. Non-Price Factor
2. Number of Buyers –

Number of Buyers
b. Non-Price Factor
3. Consumer’s Taste and Preferences

Consumer’s Taste and

Preferences
b. Non-Price Factor
4. Expectation on Future Prices

Expectation of the Consumer

on the Future Prices

Buying in Large Amount when

“I need to
buy more!”
Expected Future Demand at Present
Prices
This occurs when consumers buy unusually
large amounts of a product in anticipation
of, or after, a disaster or perceived
disaster, or in anticipation of a large price
increase, or shortage.
b. Non-Price Factor
5. Price of related goods
Complimentary Product vs Substitute Products

Demand on
Price of the
Complimentary
Product
Increase in the
Products
Price of the Sugar

Decrease inthe
Demandof theSugar

Decrease also intheDemand

oftheCoffeeas
ComplimentaryProduct
 b. Non-Price Factor
5. Price of related goods
Complimentary Product vs Substitute Products

Demand on
Price of the
Substitute
Product
Products
Pork
Chicken or Fish

Clinical Mask
Oral Vaccine

N95 Mask
Vaccine Onjection
b. Non-Price Factor
Others – Due to Occasion

OCCASIONS

There is SHIFT in
the demand to
the right

I will buy I will buy

3! Me 10! Me 15!
5!
Law of Demand
Assuming all non-price determinants remain
constant, as prices increases, quantity demanded
decreases. As price decreases, quantity demanded
increases.

Non-price determinants of Demand:

1. Income- Y ↑ QD ↑
2. Number of buyers ↑, QD ↑
3. Consumer’s taste and preference↑, QD ↑
4. Expectation on future prices
5. Price of related goods
Supply
It focus on the
producers
based on the
changes of
the prices.
 MANUFACTURING

SUPPLIER
SELLER
PRODUCER ENTREPRENEUR
BUSINESSMAN
Terms to remember
Supply - the amount of
commodity available
for sale in a given
period of time.
It is the willingness of
the seller to produce
goods and services.

Quantity Supply (Qs)

Why Gilbert added supply in
producing the items?
Why Gilbert added supply in
producing the items?
LAW OF SUPPLY
Supply Schedule
- is a table presentation showing the relationship of
price and the quantity supply.
 Supply Curve
- is a graphical presentation
showing the relationship of
price and the quantity supply.
Supply Function
- is a mathematical presentation showing the
relationship of price and the quantity supply.
Qs = 100 + 20(P)
Qs = 100 + 20(40)
= 100 + 800
Qs = 900
Qs = 100 + 20(P)
Qs = 100 + 20(25)
= 100 + 500
Qs = 600
Law of Supply
• Assuming all non-price determinants remain
constant, as prices increases, quantity supplied
also increases. As price decreases, quantity
supplied also decreases.

Non-price determinants of Supply:

1. Costs of Production↑ QS ↓
2. Number of sellers ↑, QS ↑
3. Technology↑, QS ↑
4. Taxes ↑ QS ↓, and subsidies ↑, QS ↑
5. Expected price of the producer ↑, QS ↑
6. Typhoon ↑ QS ↓
Terms to remember
Price Ceiling- is the maximum limit at which the
price of a commodity is set. (protect consumers)
Price Floor- is the minimum limit beyond which the
price of a commodity is not allowed to fall.(protects
sellers)
Price is the value of a good in terms of money
Pork
Supply 1 Seller 1 P 250 Price floor
Supply 2 Seller 2 P 300 SRP
Supply 3 Seller 3 P 400 price ceiling
 Equilibrium Point
• It is a point where demand and supply
functions are equal.
 Interaction of Demand and Supply

10 SUPPLY
9 Price Qs Qd

8 3 3 7

7 D<S 5 5 5
6
PRICE

5 S=D 7 7 3
4
3 S<D
2
1
0
DEMAND
1 2 3 4 5 6 7 8 9 10
SIOMAI
Surplus-
QS > QD
• If the market price is above the equilibrium price,
quantity supplied is greater than quantity
demanded

Shortage-
QD > QS
• If the market price is below the equilibrium price,
quantity supplied is less than quantity demanded
Market Equilibrium
• if at the market price the quantity
demanded is equal to the quantity
supplied.
• The price at which the quantity
demanded is equal to the quantity
supplied is called the equilibrium price or
market clearing price, and the
corresponding quantity is the equilibrium
quantity.
QS-QD
P26.00, 32units
equilibrium point

Surplus or
Price(P) QS QD shortage

30.00 40 28 1. ______

28.00 36 30 2. ______

26.00 32 32 3. ______

24.00 30 34 4. ______

20.00 28 40 5. ______
 Activity # 2
Write A if it shifts to the right and B if it shifts to the left.

Demand
1. Increase in number of buyers
2. Decrease in income
3. Increase in consumers’ taste
4. Increase in price of meat, what will happen to the
demand on fish?
5. Increase in price of sunglasses, what will happen
to demand of contact lens?
Write A if it shifts to the right and B if it shifts to the left.

Supply
1. Increase in costs of raw materials
2. Decrease in number of sellers
3. Increase in taxes
4. Increase in technology
5. Typhoon hits the rice lands, what will happen to
supply of rice?