Lesson 1: Supply, Demand, and Market Qd = f (p)

Equilibrium
If price is given: If Qd is given:
Qd = ? Price = 80 Qd = 25 Price = ?
Market
Interaction between buyers and sellers of trading
Qd = 400 - 5p 25 = 400 - 5p
or exchange
Qd = 400 - 5 (80) 5p = 400 - 25
Qd = 400 - 400 5p = 375 P = 75
Goods Market
Qd = 0 5 5
Most common type of market, where we can buy
consumer goods
Non - price determinants shifts the demand
curve
Labor Market
Where workers offer services and look for jobs
Leftward Shift → Decrease in demand
and where employers look for workers to hire

Rightward Shift → Increase in demand

Financial Market
Includes the stock market where securities of
Normal Goods → Increase in income, demand
corporations are traded
goes up
DEMAND
Inferior Goods → Increase in income, demand
The willingness of a consumer to buy a
decreases
commodity at a given time

EXPECTATIONS OF FUTURE PRICES

DEMAND vs QUANTITY DEMANDED

*If buyers expect a rise in price, consumers will

Demand → Is the relationship between the price
buy more. If they expect a decrease in price in
and quantity
the future, they’ll buy later.
Quantity → A given quantity consumers would
PRICE OF RELATED GOODS
choose to buy at a given price

*Finding cheaper alternatives

LAW OF DEMAND
*Goods that are used with each other
Inverse relationship
(Complementary Goods)
As price goes up, quantity demanded goes down.
As price goes down, quantity demanded goes up.
NUMBER OF CONSUMERS
CETERIS PARIBUS
*More People = More Demand
- All other things being equal

DEMAND FUNCTION
Change in price means change in Quantity
Shows how the quantity demanded of a good
Demanded. A Non - price determinant means
depends on this determinants
a change in Demand
SUPPLY AVAILABILITY OF RAW MATERIALS
Relationship between the price of a Decrease in the availability of raw materials will
commodity that producers wish to make and shift the curve to the left
sell per period of time
CHANGE IN THE NUMBER OF
PRODUCERS
What can affect supply?
The number of producers affects supply. If a
*The price suppliers can charge and the cost firm stops production, it will shift the curve to
why would incur in the process the left. Whereas, additional suppliers will shift
the curve to the right
LAW OF SUPPLY
Direct Relationship CHANGE IN THE PRICE OF RELATED
PRODUCTS
Price → down = Quantity Supply → down An increase in the price of onions may convince
Price → up = Quantity Supply → up farmers engaged in production of garlic to shift
to onions. This will shift the curve to the right
Qs = f(p)
EXPECTATIONS OF FUTURE PRICES
Qs = ___ + _p
If a dealer of a particular good expects the price
of his product to rise in the days to come, the
If price is given: If Qs is given: dealer will hold back his supply. Actions like
Qs = ? Price = 80 Qs = 150 Price = ? this will shift the curve to the left

Qs = 100 + 2p 150 = 100 + 2p TAXES AND SUBSIDIES

Qd = 100 + 2 (80) 150 - 100 = 2p Increased tax will shift the curve to the left as
Qd = 100 + 160 50 = 2p P = 25 this will be an additional expense for firms. On
Qs = 260 2 2 the other hand, subsidies are given as “financial
assistance” to businesses and would therefore
NON-PRICE DETERMINANTS OF increase production – shifting the curve to the
SUPPLY right

COST OF PRODUCTION The non-price determinants are the shifters of

An increase in the cost of production will shift the supply curve. An increase in supply will shift
the supply curve to the left, whereas a decrease the curve to the right, while a decrease in supply
in the price of the cost of production will shift will shift the curve to the left
the curve to the right

TECHNOLOGY
Through improvements in technology,
productivity will increase. The use of
technology will lower the cost and speed up
production. This will shift the curve to the right
 Increase in Supply Decrease in Supply
→ Price decrease → Price decrease
→ Quantity increase → Quantity decrease

Increase in Demand Decrease in Demand

→ Price increase → Price decrease
→ Quantity increase → Quantity decrease

Quantity → One particular count within a price

Supply/Demand → Pertains to entire

Change in price = Change in quantity supplied
relationship
→ Movement is only along the curve itself

Change in supply = Changes the entire curve
→ Quantity supplied at each price changes
because of non-price determinants
MARKET EQUILIBRIUM
Is a state of balance when demand is equal to
supply
→ The point where the curves intersect is called
the market equilibrium
MARKET SURPLUS
Quantity supplied is greater than quantity
demanded
MARKET SHORTAGE
When quantity demanded is greater than
quantity supplied
*Everything that is high in supply, price
decreases
DOUBLE SHIFTS
When the two curves shift at the same time,
either the price or the quantity will be
indeterminate
Depends on the impact of change
Lesson 2: Elasticity of Supply and Demand
ELASTICITY
The degree of response to a change in price. It is
also a measure of how much buyers & sellers
respond to changes in market conditions
Degrees
ELASTIC GOODS
→ Have plenty of substitutes
→ As price increases/decreases, there will be
huge changes in quantity supplied/demanded
→ Greater than 1

Change in Supply vs Change in Demand INELASTIC DEMAND

→ Change in price shifts quantity supplied & → As price increases, quantity demanded
quantity demand (movement along the curve) doesn’t decrease that much & vice versa
→ Only non-price determinants changes the → Few or no substitute
curve → Less than 1

SHIFTING SUPPLY & DEMAND CURVE

→ Increase in demand/supply shifts equilibrium
price & quantity equilibrium
UNITARY ELASTIC
→ Change in determinant will lead to a
proportionately equal change in demand or
supply
→ Absolute value of the coefficient of elasticity
is equal to 1
PERFECTLY INELASTIC
→ Change in price can cause no change to
quantity
→ Coefficient is zero
PERFECTLY ELASTIC
→ Coefficient is infinite
→ Change in price = Lose all customers
ELASTICITY OF DEMAND
Measures how sensitive quantity demanded is to
a change in price
3 TYPES OF ELASTICITY
→ Arc/Price Elasticity
→ Income Elasticity
→ Cross Price Elasticity
Arc/Price Elasticity of Demand
In interpreting your answers (elastic, inelastic or
unitary elastic), it is a must to get the absolute
value of the number. To get the absolute value
means to consider negative numbers as
positive
Income Elasticity of Demand
Measures the responsiveness of the quantity
demanded for a good or service to a change in
the income of the people demanding the good
→ If the answer is positive = Normal Good
→ If the answer is negative = Inferior Good
Cross Price Elasticity of Demand
Measures how quantity demanded changes as
the price of a related good changes
→ Positive sign = Substitute Goods
→ Negative sign = Complementary Goods
ELASTICITY OF SUPPLY
Measures of sensitivity of the quantity supplied
of a good or service to a change in price of that
good or service
Manufactured Goods (Elastic Supply)
→ Mass production using integrated production
lines
→ Easier to store finished goods
→ Firms have spare capacity/extra production
shifts
Agricultural Goods (Inelastic Supply)
→ Harder to store because goods are often
perishable
→ Growing seasons mean production period is
longer
→ Unpredictable supply because of volatile
climate
Price Elasticity of Supply
→ Goods that are easy to produce have elastic
supply while those which need a long time to
produce and which are hard to make have
inelastic supply
Lesson 3: Market Structures
MARKET
Is a situation of diffused, impersonal
competition among sellers who compete to sell
their goods and among buyers who use their
purchasing power to acquire the available goods
in the market
COMPETITION
Is rivalry among various sellers in the market
MARKET STRUCTURE
Refers to the competitive environment in which
buyers and sellers operate
PERFECT COMPETITION
Implies an ideal market situation for both buyers
and sellers (Price makers)
→ Homogeneous products = similar products
Characteristics of a Perfectly Competitive
Market
→ There are so many buyers and sellers that
each has a negligible impact on market price
→ A homogeneous product is sold by sellers,
which means that products are highly similar in
such a way consumers will have no preference
in buying from one seller over another
PERFECT MOBILITY
Refers to the easy transfer of resources in terms
of use or in terms of geographical mobility
GEOGRAPHICAL MOBILITY
Is the movement of factors of production from a
productive activity on one location to productive
activity to another location
*There is a perfect knowledge of economic
agents of market conditions such as present and
future prices, costs, and economic opportunities
*Market price and quantity of output are
determined exclusively by forces of demand and
supply
IMPERFECT COMPETITION
In other markets, one or more of the assumptions
of perfect competition will not be met; thus, the
market becomes imperfectly competitive
Three Types of Imperfectly Competitive
Market
● Monopoly
● Monopolistic Competition
● Oligopoly
MONOPOLY
→ Exists when a single firm that sells in that
market has no close substitutes
→ Its existence depends on how easy it is for
consumers to substitute the products for those of
other sellers
→ These sellers are price setters
→ Examples would be Meralco and Manila
Water
Why does monopoly tend to have a bad image to
consumers?
1) Price Fixing
2) No desire to innovate
3) Inferior products are accepted
4) Ability to strong-arm suppliers
What are the reasons why monopoly can exist?
→ A single seller has control of entire supply of
raw materials
→ Ownership of patent or copyright is invested
in a single seller
→ There are barriers to entry that may cause
other firms to stay out of the market instead of
entering and competing with firms already there
→ The producer will enjoy economies of scale,
which are savings from a large range of outputs
→ Grant of government franchise to a single
firm
MONOPOLISTIC COMPETITION Characteristics of Oligopoly
→ It is a market wherein products are → The action of each firm affects other firms
differentiated and entry and exit are easy → There is an interdependence among firms
→ It combines some characteristics of perfect
competition and monopoly SIGNIFICANCE OF THE MARKET
→ Examples would be Jollibee and McDonald’s STRUCTURE
→ Blend of competition and monopoly
→ Firms sell differentiated products, which are The type of market structure in which the
highly substitutable but are not perfect business operates will determine the amount of
substitutes market power or control the business owner will
→ Many sellers offer heterogeneous or enjoy
differentiated products, which are similar but not
identical. And they satisfy the same basic need Lesson 4: Contemporary Issues Facing the Filipino
Entrepreneur
*There are changes in product characteristics to
increase appeal using brand, flavor, consistency, Price Controls
and packaging as means to attract customers Price controls is when government laws regulate
prices instead of letting market forces determine
→ There is free entry and exit in the market that prices
enables the existence of many sellers
→ It is similar to a monopoly in that the firm Price Floor
can determine characteristics of product and has Is the lowest legal price that can be paid in a
some control over price and quantity market for goods and services, labor, or financial
→ The firm tend to engage in non-price capital
competition
→ A price below which a good cannot be
Monopolistic Competition Goods bought and sold
→ It prevents price from falling below a certain
- Toothpaste level
- Shoes → Favors suppliers
- Processed Meats
- Sardines Price Ceiling
- Coffee → Price above which a good cannot be bought
- Soap or sold
- Shampoo → Enacted in an attempt to keep prices low for
those who demand the product
OLIGOPOLY → Favors the consumers
→ Market dominated by as small number of
strategically interacting firms MINIMUM WAGE
→ Few sellers account for most of or total → Is an example of price floor, this means that
production since barriers to free entry make it paying workers less than the specified wage is
difficult for new firms to enter illegal
→ Examples would be Petron, Unioil, or Gas
Stations and Internet Providers in general
→ Higher wage = Employers hire fewer workers
whereas Lower wage = Employers hire more
workers (Demand Side)
→ Higher wage = More workers available for
employment whereas Lower wage = Fewer
workers (Supply Side)
*Those who are in favor of a higher minimum
wage believe that the demand for unskilled
workers are highly price inelastic which means
that an increase in minimum wage will only
result to a small decrease in quantity demanded
(Few unskilled workers will lose their job)
*If there are plenty of substitutes for unskilled
workers then this will mean that demand for
unskilled workers is highly price elastic. This
means that an increase in wage will cause a big
decrease in the quantity demanded, therefore a
lot of unskilled workers will lose their job
*Creating more jobs will shift the curve to the
right and will increase equilibrium price and
quantity. This means that more jobs will be
available for the people and will therefore
empower them to demand for higher wages
RENT
→ Payment given for temporary use
ECONOMIC RENT
→ Is the positive difference between the actual
payment made for a factor of production to its
owner and the payment level expected by the
owner
→ Exists because of inclusivity or scarcity
SAVINGS & INVESTMENTS
→ Savings is defined as the postponed
consumption at present
→ Investment is the building up of capital
stocks form more future production and
consumption
*There are people who save their money in
banks for future use. It is because of these
people’s savings that allows others to spend on
investment even before they were able to save
through borrowing
TAXES
→ We pay our taxes for the government to be
able to provide public goods and services such
as roads, public schools, public hospitals, and
other infrastructures. Indeed, we must benefit
from the taxes that we are paying
→ Even if we benefit from these services, taxes
are still a burden to us and must be minimized
(ideally). Taxes can distort savings, investment,
and consumption. An increase in tax can drive
consumers to just save money instead of using it
to purchase goods and services
*Corruption is what’s actually stopping the
government from maximizing the tax benefits
for its people. Not only that, corruption also
diverts government projects from more
important to less important ones. Example
would be: LGUs prioritize road beautifications
instead of health care
Lesson 5: Tools in Evaluating a Business — SWOT
ANALYSIS
→ Created in 1960 by business gurus in their
book “Business Policy, Text and Cases (Irwin
1969”
- Edmund P. Leamed
- C. Roland Christensen
- Kenneth Andrews
- William D. Book
→ Analytical Framework that can help a
company meet its challenges and identify new
markets
Strengths & Weaknesses (Internal) EXTERNAL FACTORS include
Opportunities & Threats (External)
- Economic trends (local, national and
Strengths & Opportunities (Helpful) international financial trends,
Threats & Weaknesses (Harmful) developments in the country’s stock
market, banking system, growth of
STRENGTHS GDP)
→ What your organization does particularly well
→ Advantages that your organization has over - Market trends (new products or
other organizations technology or evolving buyers’ profiles)

WEAKNESSES - National and local laws and statutes

→ Stop an organization from performing at (political environmental, economic
optimum level regulations)

OPPORTUNITIES - Demographic characteristics of the

→ Openings or chances for something positive target market (age, gender, culture)
to happen
→ Arise from situations outside your - Relationship with suppliers and
organization and require an eye to what might co-owners
happen in the future
- Competitive threats
THREATS
→ Factors that have potential to harm an Before an owner can plan for it’s business’
organization future he/she must:
→ Include anything that can negatively affect → Evaluate the business by identifying and
your business from the outside analyzing internal and external
resources and threats.
INTERNAL FACTORS include:
→ SWOT analysis is a tool that can help a
- Financial resources (money) proponent by enabling him\her to
identify and assess the internal and external
- Physical resources (company’s location, forces that can affect the
facilities, machinery, equipment) business.

- Human resources (employees) - Serve as guides for the company to attain

- Access to natural resources, trademarks, success
patents, copyrights
- Can anticipate problems, including possible
- Current process (employee programs, solutions and take
department hierarchies, software system, advantage of identified opportunities
sales, distribution capabilities,
marketing programs, etc - Can maximize its strengths and attempt to cut
out it’s weaknesses