Chapter 2

Consumers and Producers

Consumers INTERACTION Producers

 Demanders of  Suppliers of goods

goods and services and services

 Gains satisfaction  Gains profit

Economic Activity – interaction between consumers

and producers
Market
 A place where buyers
and sellers meet

 Kinds:
 Wet market
 Dry market
 Stock market
Demand (Household/Buyer)
Demand

 The quantity of a good or

service that people are
ready to buy at given
prices within a given
time period, when other
factors besides price are
held constant
Law of Demand

Reason:
Consumers tend to MAXIMIZE SATISFACTION
Demand Schedule and Demand Curve

Demand Demand
Schedule Curve
A table that shows the A graphical representation
relationship of prices and showing the relationship
the specific quantities between price and
demanded at each of these quantities demanded per
prices time period
Demand Schedule and Demand Curve
Change in quantity demanded
 Brought by an
increase (decrease)
in the product’s
price
Change in demand
 Brought by factors
other than the price
of the product
Forces that cause the demand
curve to change

1. Taste or preferences

 Pertains to personal likes or

dislikes of consumers for
certain goods and services
Forces that cause the demand
curve to change

2. Changing incomes
Forces that cause the demand
curve to change
3. Occasional or seasonal
products

 Particular goods affected by

various events or seasons in a
given year
Forces that cause the demand
curve to change

4. Population change
Forces that cause the demand
curve to change
5. Substitute goods

 Goods that are interchanged

with another good
Forces that cause the demand
curve to change

6. Expectation of future prices

Supply (Firm/Seller)
Supply
 The quantity of goods or
services that firms are
ready and willing to sell
at given prices within a
given time period, when
other factors besides
price are held constant
Law of Supply

Reason:
Producers tend to MAXIMIZE PROFITS
Supply Schedule and Supply Curve

Supply
Schedule
A table that shows the
relationship of prices and the
specific quantities supplied at
each of these prices
Supply
Curve
A graphical representation
showing the relationship
between price or factor of
production and quantities
supplied per time period
Supply Schedule and Supply Curve
Supply Curve Supply Schedule
Change in quantity supplied
 Brought by an increase
(decrease) in the product’s
own price
Change in supply
 Brought by factors other than
the price of the product
Forces that cause supply curve to
change
1. Optimization in the use of
factors of production

Optimization – refers to the

process or methodology of
making something as fully
perfect, functional, or
effective as possible
Forces that cause supply curve to
change

2. Technological change
Forces that cause supply curve to
change

3. Expectation of future prices

Forces that cause supply curve to
change

4. Number of sellers
Forces that cause supply curve to
change

5. Weather conditions
Forces that cause supply curve to
change
6. Government policy

Tariff – tax or duty to be paid

on a particular class of
imports or exports

Quota – limitation on the

number or quantities of
imported goods that can
enter the country
Market Equilibrium
Equilibrium Market Price and Quantity
 Equilibrium – pertains to
a state of balance that
exists when quantity
demanded equals quantity
supplied

 Equilibrium Market Price

– the price at which the
quantity demanded is
exactly equal to the
quantity supplied
Equilibrium Market Price and Quantity
DEMAND SUPPLY
Market Disequilibrium
Surplus – a condition in
the market where the
quantity supplied is
more than the quantity
demanded

Shortage - a condition in
the market where the
quantity supplied is less
than the quantity
demanded
Price Controls
Floor Price – legal minimum
price imposed by the
government

Price Ceiling - legal maximum

price imposed by the
government
Price Controls

floor

ceiling