Elements of Demand

and Supply
(Chapter 3)

Reporters:

Cacayorin, Crystal Jane

Cruz, Dangelica
Ramos, Deineil Maron
Sanchez, Onaizah
Cambronero, Valerie Joie
 CHAPTER OUTLINE

 Demand
 Determinants of Demand
 Demand Schedule
 Demand Curve
 Law of Demand
 Validity of the Law of Demand
 Justification for the Law of Demand
 Changes involving Demand
 Demand Function
DEMAND refers to the number or amount of goods and services
desired by the consumers. The quantity demanded is the
amount of goods or services consumers are willing and able to buy/purchase
at a given price, place, and at a given period of time.

If the: If the:
Price Demand Price Demand
I D D I
N E Where in, E N
C C C C
R R R R
E E E E
A A A A
S S S S
E E E E
Determinants of Demand
01 04
Price of the good itself Price of Related
Commodities/Goods

02 05
Determinants of Consumers’ Income Consumers’ Tastes and
demand are those that
actually determine the
Preferences
quantity of demand.
Some determinants of
demand are as follows: 06
03
Consumers’ Expectation Population
of Future Prices
 Determinants of Demand

01.
Price of the
good itself
As the price of certain goods and
services increases, the demand for
these goods and services decreases
or vice versa.
 Determinants of Demand
02.
Consumers’ Income

A change in income will cause in

demand. An increase in income causes an
increase in quantity demanded.

• Normal Goods. Refers to a good for

which quantity demand at every price
increases when income rises.
• Inferior Goods. Refers to a good for
which
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 Determinants of Demand

03.
Consumers’ Expectation of
Future Prices

If consumers expect the price to rise

in the future, demand increase today.

If consumers expect the price to fall in

the future, demand decrease today.

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 Determinants of Demand
04.
Price of Related
Commodities/Goods
The quantity demanded of any particular
good will be affected by changes in the
prices of related goods, Changes in the
prices of alternative goods such as pork
and chicken will affect the quantity of
fish demanded. All other commodities
are either substitute or complementary.
• Complementary goods are goods
that go together. It is consumed
simultaneously.
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• Substitute
Stories goods are goods that can
be used in place of other goods.
e.g. Coke and Pepsi
 Determinants of Demand

05.
Consumers’ Tastes and
Preferences

Consumers’ tastes and preferences are a

major factor determining the quantity
of any good demanded. An increase in
the preference and taste for a certain
good will certainly increase the demand
for that particular good.
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 Determinants of Demand

06.
Population

An increase in the population means

more demand for goods and services.
Inversely, less population means less
demand for goods and services.

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 DEMAND
SCHEDULE
&
DEMAND
CURVE
DEMAND SCHEDULE
Demand Schedule is the relationship between the quantity of a good demanded
and the price of that good. Other factors that may affect the quantity
demanded, such as the prices of the goods, are held constant in drawing up the
demand schedule.
DEMAND CURVE
• It graphically shows the relationship
between the quantity of a good demanded
and its corresponding price, with other
variables held constant
• It is typically downward-sloping.
• ”The law of downward sloping demand.”
ANOTHER EXAMPLE
Law of Demand
The law of demand states that
as price increases, quantity
demanded decreases; and as price
decreases, quantity demand
increases if the factors remain
constant.
 VALIDITY OF LAW OF DEMAND

The law of demand is only true if the

assumption of ceteris paribus is applied or
other determinants remain constant.

Ceteris Paribus means “all other things

being equal”

Determinants:
 Prices of related goods and services
 Income
 Taste and preference
 Expectations
 Population
Justification for the Law of Demand
Justification for the Law of Demand
 Changes involving Demand

Changes change in demand Involving Demand

 Change in Quantity Demanded
-movement along a demand curve is known as a change in
quantity demanded, which indicates movement from one point
to another point of the same demand curve. This is due to a
change in the price of goods and services.
• Change in Demand

-shifting from one demand curve to another is known as.

This is brought by the changes in all determinants of demand
except price.
 What is Demand Function?

 It is a mathematical expression of the Law of Demand or the

relationship between price and quantity demanded.

 The demand schedule can be expressed mathematically in a

functional form.
 We are aware that the quantity demand is a function of price of
goods and services, income of consumers, price of related
commodities, and the size of population expressed in a
mathematical equation:
Qd = f(P,Y,Pc,Ps)
Where:
Q = quantity of demand
P = price of goods and services
Y = income of consumers
Pc = price of related commodities
Ps = population size
 In the previous discussion of the demand analysis, we
assumed that all other factors or determinants of demand
are held constant except price. Hence, a linear demand
function can be expressed as:

Qd = a – bP + cY + dPc + ePs
Where, a is the intercept and b is the slope of
the function while all other variables are fixed
and will be added to the demand function as:

Qd = a – bP + x
 How to get the X?

X is the sum of income of consumers + price of related

commodities + population size.
Formula of x is:
X = cY + dPc + ePs
 Considering that other determinants in the
demand function are held constant, hence, the
value of x is zero.

X=0
 Therefore, we can now arrive with
the demand function:

Qd = a – bP
 Table 1
Demand Schedule for shoes
Price (php ‘000) Quantity Demanded
1 1000
2 800
3 600
4 400
5 200

For example, the demand schedule for shoes in Table 1 can also be expressed
in the equation:
Qd = a – bP
Qd = 1200 – 200P
 

b= Price (php ‘000)

1
Quantity Demanded
1000

b=
2 800
3 600
4 400

b= = 5 200

b = -200 (slope is always negative)

a = ? Formula: Qd = a – bP
600 = a – 200(3)
600 = a - 600
Price (php ‘000) Quantity Demanded
1 1000

600 + 600 = a
2 800
3 600

a =1200
4 400
5 200
Qd = 1200 – 200P
• Qd stands for the quantity demanded for shoes,
• P stands for the price in thousand pesos per shoes.
• This equation manifests that if the price rises by one thousand, the quantity
demanded will drop by 200 pair of shoes.
• To portray the situation mathematically, it is unlikely that the price of shoes
to drop to zero, because 1200 is the amount or quantity that will be
demanded if the price is zero.
The instruction is simple, that is:
• Multiply the price (P) by 200 and subtract the product from 1200.
• Substituting the value of P or price presented in Table 1, we can
verify the result and compare it to the value presented on the
table.
• Assuming we use 2 as the value of price,
Assuming we use 2 as the value of price,
Qd = 1200 – 200 (P)
= 1200 – 200 (2)
= 1200 – 400
= 800 Price (php ‘000)
1
Quantity Demanded
1000
2 800
3 600
4 400
5 200
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