CHAPTER 2: DEMAND AND SUPPLY

MARKET IN CONTEXT

 Market is a channel that allows buyers and sellers of a

certain good or service to interrelate in order to facilitate
an exchange.
 Market is an any outlet or network over which two or
more parties can engage in an economic transaction.
 Markets establish the going rate for good and services
which sellers agree by producing supply and which
buyers ascertain by generating demand.
 Market is a focal base for the distribution of
commodities for the community.
 Physical
Shopping centers
Marketplace

Types of Market

Virtual Market Online

(Internet)
DEMAND

 It refers to the set of quantities of BUYERS are willing

and able to buy at various prices at a given time and place.

Four elements of Demand

1. Qd – set of quantities demanded

2. P – price

3. T- time

4. M- market or place
THREE METHODS

1. Demand function- Mathematical equation

2. Demand schedule- Tabular representation
3. Demand curve- Graphical illustration
 DEMAND FUNCTION
 It is a mathematical function explaining the quantity of
demand in terms of its determinants.
 It is a function that maps the quantity of output demanded
to the market price (dependent variable) for that output.

Formula:

Qd = a - bP
 
DEMAND SCHEDULE
 It is tabular presentation.
 It shows the amount of goods consumers are willing to
buy at each market place.
DEMAND CURVE
 It is graphical representation of the relationship between
the price of good and service and quantity demanded for
a given period of time.
 ILLUSTRATION OF THREE METHODS

Example: Qd=120 – 20P 4. Qd = 120 – 20(4)

What are the values of Qd if P 1 2 3 4
and 5?
= 120 – 80
Demand Function Qd = 40
1.Qd = 120 - 20(1) 5. Qd = 120 – 20(5)
= 120 – 20 = 120 – 100
Qd = 100 Qd = 20
2.Qd = 120 – 20(2)
= 120 – 40
Qd = 80
3. Qd = 120 – 20(3)
= 120 – 60
Qd = 60
DEMAND SCHEDULE

P Qd
1 100

2 80

3 60

4 40

5 20
 DEMAND CURVE
P
5

4 Negative slopped

Downward slopping
2

Qd
LAW OF DEMAND
 Inverse relationship
 P Qd
The law of demand affirms that , if all other aspects stay
equal, the higher the price of a commodity, the less the
people will demand that good. Simply means the higher
the price, the lower is the quantity of demanded.