What is DEMAND?

 is the schedule of various

quantities of commodities
which buyers are willing and
able to purchase at a given
price, time and place.
 the willingness of people to
buy a particular product
DEMAND
• refers to the number or
amount of goods and
services desired by the
consumers at various
prices in a particular
period of time.
 Types of demand
Consumer demand – demand for the final or
finished product.
Producer demand – demand for intermediate
products used in producing the final or
finished product.
Demand for social services – a special type of
consumer demand where the government’s
ability to provide for the services and not the
consumer’s income determines demand.
Inverse relationship between price
and quantity may be explained by:

Substitution effect – consumers

shift their purchases towards
the relatively cheaper products
as price changes
Income effect – a change in the
price of one commodity, all
other factors affecting demand
held constant, changes the
consumer’s real income.
Demand may be presented
in the form of :

 Graph
 Schedule
 Equation
Demand may be presented in
the form of :

 Graph
• Demand may be presented in
the form of :
 Demand Schedule

Price of Palay Quantity

Demanded

0 8
50 7
100 6
Inverse relationship between price and
quantity

Price Quantity
Demanded
1 5

2 4

3 3
4 2
5 1
• Demand may be presented
in the form of :

 Equation: Qd = a – bP
• a – intercept term
• B – slope of the demand
curve
• P – price
• Qd – quantity demanded
• Factors affecting demand

a. Income
 Normal good – consumption
increases as income
increases, e.g. jewelries,
appliances, cars.
 Inferior good – consumption
decreases as income
decreases, e.g. dried fish
• Factors affecting demand

b. Price of complementary goods

 goods that go together, e.g. film
and camera, ball pen and ink.
c. Price of substitute goods
 Goods that can be used in lieu of
the other good, e.g. Pepsi and
Coke, Colgate and Close Up
• Factors affecting demand
d. Number of consumers/populations
 As the number of babies
increases, the demand for baby
diapers will also tend to increase.
c. Consumer expectations
 Expectations about future prices
and income affect our current
demand for goods and services.
• Factors affecting demand
e. Taste and preferences
 Consumers tend to
increase their
consumption of goods
and services that is
considered as the “in
thing”.
Demand curve showing a downward
sloping curve
 LAW OF DEMAND

As the price increases, quantity

demanded decreases, as the
price decreases, quantity
demanded increases ( ceteris
paribus).
Justification for the Law of Demand

Income effect
Substitution effect
Changes in Demand vs. Changes
in Quantity
• Changes in demand refers to
changes in the determinants of
demand like income, population,
price expectation, and so forth.
• ex. an increase in population
also increases demand for goods
and services, or decrease in
income also reduces demand.
Graph
Changes in Quantity Demanded

• indicates movement from

one point to another point
( from price-quantity
combination to another
price-quantity combination
on a fixed demand curve).
• Movement along the demand curve
vs. Shift of the demand curve

Factor Effect
Own-price of the good Movement Change in quantity
along demanded
Income Shift Change in demand

Price of complements Shift Change in demand

Price of substitutes Shift Change in demand

No. of consumers Shift Change in demand

Taste & preferences Shift Change in demand

Graph
SUPPLY
Supply
• is the schedule of various
quantities of commodities which
producers are willing and able to
produce and offer a given price,
place and time.
• known as the willingness of the
producer to produce more or less
goods in the market.
Individual supply schedule showing direct
relationship between price and quantity

Price Quantity supplied

100.00 100.00

200.00 200.00

300.00 300.00

400.00 400.00

500.00 500.00
Determinants of Supply

• Technology
• cost of production
• number of sellers
• prices of other goods
• price expectations
• taxes and subsidies
• weather
• availability of resources
Technology
• refers to the techniques or
methods of production.
• modern technology which uses
modern machines increases
supply of goods.
• more improved and advance
technology and good
manifestation of increase of
goods in the market
 Cost of Production

• a higher cost of raw materials and

other determinants of supply can
cause supply of finished goods in the
market.
• in producing goods, raw materials are
needed, together with laborers. if the
price of raw materials or the salaries of
the laborers increase, it means higher
cost of production.
Number of sellers
• more sellers more
factories mean an increase
in supply.
• an increase number of
producers and sellers
means an increase of
goods in the market.
Prices of other goods
• changes in the price of goods
affect the supply of such
goods.
• the increase in price of goods
especially raw materials can
cause a decrease in the supply
of finished goods or products
in the market.
Price expectation
• if producers expect prices to
rise very soon, they usually
keep their goods and then
release them in the market
when the prices are already
high. This creates artificial
shortage due to hoarding.
Taxes and subsidies
• certain taxes increase cost of
production. higher taxes
discourage production
because it reduces the
earnings of businessmen.
• higher taxes imposed by the
government, can cause less
supply of goods in the market.
Weather
• the weather condition also
affects the supply of goods
in the market.
Law of Supply
• As the price increase,
quantity supply also
increases, and as
price decreases,
quantity supply also
decreases.
• Movement along the Supply curve vs. Shift of
the Supply curve

Factor Effect
Own price of the Movement Change in quantity
good along supplied
Price of Shift Change in supply
production
inputs
Technology Shift Change in supply

No, of sellers Shift Change in supply

Weather Shift Change in supply

Law of Supply and demand

• Demand greater than supply;

price increases, when supply
greater than demand; price
decreases and when demand
equal to supply; price
constant.
 Market equilibrium: Qd = Qs

 Example of demand and supply schedule

Price/unit Qd Qs
5000 10000 5000
6000 9000 6000
7000 8000 7000