Applied

Economics
 Lesson 2- Basic
Principles of Demand
and Supply
The Market

A market is an interaction between

buyers and sellers of trading or exchange.
It is where the consumer buys and seller
sells.
Goods Market
Is the most common type of
market because it is where
we buy consumers goods.
Labor Market
Is where workers offer services
and look for jobs, and where
employers look for workers to
hire.
Financial Market

Includes the stock market where

securities of corporations are
traded.
Demand
Is the willingness of a consumer to buy
a commodity at a given price. A
demand schedule shows the various
quantities the consumer is willing to
buy at various prices.
 A demand function shows how the quantity demanded
of a good depends on its determinants, the most important
of which is the price of the good itself, thus, the equation:

Qd = f (P)
 This signifies that the quantity demanded for a good is dependent on the price of that good. Presented
in Table 1 is a hypothetical monthly demand schedule for vinegar (in bottles) for one individual, Martha.
The quantity demanded is determined at each price with the following demand function:

Qd= 6 – P/2
Price Per bottle Number of bottles
₱0 6
2 5
4 4
6 3
8 2
10 1
Table 1. Hypothetical Demand Schedule of Martha for Vinegar (in
bottles)
Qd= 6 – P/ 2 Qd= 6 – P/ 2
= 6 – (0/2) = 6 – (2/2)
=6–0 =6–1
=6 =5
Qd= 6 – P/ 2 Qd= 6 – P/ 2
= 6 – (4/2) = 6 – (6/2)
=6–2 =6–3
=4 =3
Qd= 6 – P/ 2 Qd= 6 – P/ 2
= 6 – (8/2) = 6 – (10/2)
=6–4 =6–5
=2 =1
Demand Curve
Exercises:
Using the following demand
Prices Quantity Demanded
function, solve for the demand ₱0 ?
schedule of consumer Robert 2 ?
given the following prices for 4 ?
bottled water: 6 ?
8 ?
Qd= 60 – P/2 10 ?
12 ?
14 ?
• Based on this schedule, 16 ?
construct a demand curve for
Robert.
Supply
Refers to the quantity of goods that a seller is
willing to offer for sale. The supply schedule
shows the different quantities the seller is
willing to sell at various prices. The supply
function shows the dependence of supply on
the various determinants that affect it.
 Assuming that the supply function is given as Qs = 100 + 5P
and is used to determine the quantities supplied at the given prices.

Price of Fish (per kilo) Supply (in kilos)

₱20 200
40 300
60 400
80 500
100 600

Table 2 – Supply Schedule of Pedro for fish in one week

 Qs = 100 + 5P
Qs= 100 + 5P Qs= 100 + 5P
= 100 + 5(20) = 100 + 5(40)
= 100 + 100 = 100 + 200
= 200 = 300
Qs= 100 + 5P Qs= 100 + 5P
= 100 + 5(60) = 100 + 5(80)
= 100 + 300 = 100 + 400
= 400 = 500
Qs= 100 + 5P
= 100 + 5(100)
= 100 + 500
= 600
Supply Curve
Exercises:
Using the following supply
Prices Quantity Supplied
function, solve for the supply ₱0 ?
schedule of Rudolph, a seller of 2 ?
bottled water in the market. 4 ?
6 ?
Qs= 5 + 5P 8 ?
10 ?
12 ?
• Based on this schedule,
14 ?
construct a supply curve for 16 ?
Rudolph.