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Agriculture and Fishery Arts Handout 1
Agriculture and Fishery Arts Handout 1
Discussion Review:
Pricing is an integral part of marketing. The heart of price
formation under pure competition, is demand and supply
analysis.
Without analysis of demand and supply, we cannot
understand how prices are determined.
5 8 Demand Curve
4 13 Price
3 20
2 30
1 45
Qty. Demanded
Change in Quantity Demanded
Demand for rice 45
40
Price per kg. Qty. Demanded (kg)
Q1 29 10 35
Q2 31 8
Q3
Q4
33
35
6
4
30
Q5
Q6
37
39
2
0
25
Price
20
Demand for rice
15
Price and quantity
demanded is inversely 10
related to each other. 5
Law of Demand 0
0 2 4 6 8 10 12
Change in Quantity Quantity Demanded
demanded is a change
along the demand curve.
Question 2
The effect of a price change is always negative as consumers
tend to substitute other goods resulting to a decrease in
quantity demanded?
a. Substitution
Substitute effect
Effect c. Giffen paradox
b. Income effect d. Inferior good
Discussion Review
If the price of chicken declines relative to pork, consumers
tend to substitute chicken for pork. Consumer tends to
substitute the relatively cheaper commodity for the more
expensive one to remain at the highest possible level of utility
within the constraint of available income.
What is Substitution Effect in relation to change in demand?
Price
Change in Demand is a
movement of the whole demand
Qd1
curve either downward (left
P1
side) or upward (rightward)
P2 Qd2 movement.
Qd
DEMAND FOR PORK P Downward movement
Upward movement
Price
Qd
P2 Qd2
P1 P
Qd1
Quantity
Discussion Review
Demand increases as the income of the consumers
increases, prices remaining constant. (Demand and income is
positive).
INCOME EFFECT
P1 Price increases
Quantity demanded
increases
Qd1 Qd2
Change in Demand
Change in Demand is a change in an entire demand curve.
a. An
Anincrease
increaseininrevenue
revenue c. A decrease in total revenue
b. No change in total revenue d. A decrease in the value of
the elasticity of demand
Discussion Review
Reactions of consumers to changes in the price of a
particular commodity may either be a decrease in purchase if
prices increase or an increase in purchases as prices decrease.
But the extent to which this occurs varies widely from product
to product.
The extent to which purchases change in response to price
changes is referred to as price elasticity of demand.
Price elasticity of demand
E = % change in quantity
% change in price
0 = Perfectly inelastic
more than 0 less than 1 = Inelastic
1 = Unitary elastic
more than 1 to infinity = elastic
Infinity = perfectly elastic
A drop in price causes consumers to make larger money
expenditure on a commodity whose demand is elastic,
If demand is inelastic, a fall in price causes consumers to
spend less money on the commodity.
Question 6
When the price of papaya increase by 30 %, quantity
demanded decrease by 2 %. What is the absolute value of
the elasticity of demand?
a. 2 c. 30
b. 1.5 d. 0.07 d. 0.07 = (2/30=0.0667
Question 7
Under what condition will demand be likely elastic?
a. Newly marketed product c. Ac.product hashas
A product many usesuses
many
b. Perishable product d. All of the above
Question 8
The supply curve for a given commodity will shift to the right
if?
a. Competing or alternative commodities become more
profitable
b. AAtechnological
technologicalimprovement
improvement results
results in a decrease in per
unitunit
costcost
c. The cost of producing the commodity increases.
d. All of the above
Question 9
Improvement in production technology, given a constant
demand, will result in?
a. Increase
Increaseininsupply
supplyand
andsubsequently
subsequentlylower
lowerprice
priceofofthe
the
product.
product.
b. Increase in supply without any change in the price of the
product.
c. Increase in supply and an increase in the price of the
product.
d. All of the above
Discussion Review
Supply is quantity offered for sale is made to depend on
price, other variables can affect quantity held constant.
Supply is represented either in supply schedule or
graphical presentation.
A normal supply function should slope upward and to the
right. Producers presumably are willing to offer larger
quantities as the prices rises.
Price Change in quantity supplied.
Is a change of quantity
P2
supply along the supply
P1 curve.
Quantity
Qd1 Qd2
Change in Supply DOWNWARD MOVEMENT
(RIGHTWARD);
Dec. In Price
Inc. In Qty Supplied
Change in Supply
UPWARD / LEFTWARD
MOVEMENT
Inc. In Price
Inc. In Qty Supplied
Supply Shifters
Downward movement
B. Changes in Technology (+)
> An improvement of technology, increase supply
Upward movement
C. Sellers expectations of future prices (+)
Upward movement
D. Prices of closely related commodities. (-). E.g Corn &
Hog / Profitability of competing commodities (+) Rice
& Corn
Upward movement/ Downward Movement
Question 10
That price at which the quantity per unit of time that buyers
want is just equal to the quantity that sellers want to sell?
Equilibriumprice
a. Equilibrium price c. Selling Price
b. Buying Price d. None of the above
Price Demand Supply
2 4 3
4 7 4
5 5 5
6 3 8