DEMAND, SUPPLY AND PRICE The Demand Curve

BASIC ELEMENTS OF DEMAND AND SUPPLY • The price per unit is represented in the vertical
axis.
The Market
• The quantity demanded for each price level is
Market
indicated in the horizontal axis.
- exist when buyers wishing to exchange money for a
good or service are in contact with sellers wishing to
exchange goods or services for money.

- it is where people are left alone to make their own

transactions.

- it is where the forces of demand and supply interact.

How a Market Functions

• The actions and decisions of buyers constitute

demand for product or services.
• The sellers’ decision and actions constitute
supply.
• The higher the demand is for product and
services; the higher will be the demand for
economic resources.
Market Demand
- refers to the buyers’ willingness and ability to pay a
sum of money for some amount of a particular goods or
service.
Non-Price determinants of demands
– Average income of consumers
Persons basically purchase the necessities with their
income.
– Size of the market
The demand curve is affected by the number of people
living in a given area.
– Price and availability of related goods

• The relationship between price and quantity Goods that are related tend to influence each other
demanded is the subject of the law of demand. demand.

Law of Demand

- indicates that “the quantity of any good which Two types of related goods:
buyers are ready to purchase varies inversely with the a. Substitute goods
price of the good”
- goods that compete with each other

b. Complementary goods

- goods that are used jointly

• Preferences or taste

People of different cultures vary in taste and

preferences.

• Special influences
• Low Price not only motivate current buyers to There are certain developments that influence
buy more of the commodity but also attract demand for certain goods and services.
new buyers to buy.
 • Expectations about the future economic
conditions
When people expect changes in the
economy, their reaction will affect demand
for certain products.
Shifts in the Demand Curve
• When the adjusted demand schedule is plotted
in a graph, the original demand (C1) will shift to
the left (C2) when there is a decrease in
demand, and shift to the right (C3) when there
is an increase in demand.
Market supply
- defined as the quantity of a good or service
which sellers desire to sell at a given price.
The supply situation may be presented in two ways:
1. the supply schedule, and
2. the supply curve.
Supply Schedule
- tabular presentation showing the relationship
between a commodity’s market price and the amount of
the commodity that producers are willing to produce
and sell, other things held equal.
Supply Curve
- the graphical illustration of the supply
schedule.
• As price goes up, the quantity of goods and
services under consideration tends to increase.
Inversely, as the price goes down, the quantity
supplied tends to decrease.
 • Taxes and Subsidies Market Equilibrium

Payment of taxes is an added component of the
cost of production.
• Subsidies
Money given to firms by the government to
help them maintain their current or desired output.
• When the individual schedules of supply and
demand are put together, there will be a price
where the quantity buyers want to buy exactly
equals the quantity which sellers are offering for
sale.

• Technology

Improvements in technology make possible the

production of goods at services at lower costs.

Shifts in the Supply Curve

• Plotting the adjusted supply schedule in a graph

will show that the original supply curve (S1)
shifts to the left (S2) when supply decreased,
and to the right (S3) when supply increased.