DEMAND

and SUPPLY
 What is Demand?

Quantities of a particular good or service consumers

are willing and able to buy at different possible prices.

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The Law Of When price
goes up…..
Demand goes
down…..
When price
goes down…..
Demand goes
up…..

Demand
Consumers buy more of a
good when its price decreases
and less when its price
increases

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 Factors of Demand
1. Changes In Income
(The Income Effect)
…….
When income goes up Consumers buy more

When income goes up Consumer buy

less
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 Factors of Demand

“
2.Prices or availability of substitutes
3.Prices or availability of complementary goods
4.Changes in the number of buyers
5. Changes in tastes & preferences

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 What is Supply?

◎ Supply: The amount of a product that is offered

for sale at all possible prices in the market.

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The Law
Of
Supply
When price Supply goes When price Supply goes
goes up….. up….. goes down….. up…..

Tendency of suppliers to
offer more of a good at a
higher price and less at
lower prices.

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 Factors Of Supply
1. Cost of inputs (factors of
production)

When production cost Supply goes down

goes up

When production costs goes Supply goes up

down

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 Factors Of Supply
2. Changes in Productivity…

When productivity goes Supply goes up

up

When productivity goes Supply goes down

down

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 Factors Of Supply
3. Change in the number of sellers
in the market...

More sellers in a market Increase supply

Fewer sellers in a market Decrease supply

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 THEREFORE
The law of demand describes how price
affects CONSUMERS…

And the law of supplies describes how

price affects PRODUCERS

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MARGINAL ANAYLYSIS

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What is Marginal Analysis?

◎ Marginal analysis is used to assist people in allocating their

scarce resources to maximize the benefit of output produced.
◎ Simply getting the most value for the resouces used.

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Marginal Analysis

◎ Marginal Analysis: The Analysis of the benefits and costs

of the marginal unit of a good or input.

(Marginal = the next unit)

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Marginal Analysis

◎ A technique widely used in business decision-making and ties

together much of economic thought.

In any situation, people want to maximize net benefits:

Net Benefits = Total Benefits – Total Cost

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 The Control Variable
To do marginal analysis, we can change a variable,
such as the;

 Quantity of a good you buy,

 the quantity of output you produce, or
 the quantity of an input you use.

This variable is called the control variable.

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The Control Variable

◎ Marginal analysis focuses upon whether the control

variable should be increased by one or more unit or
not.

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 KEY PROCEDURES
FOR USING MARGINAL
ANALYSIS
 Key Procedures for Using Marginal Analysis

Determine what the increase in total

cost would be if one or more unit were
Identify the control
added.
variable (cv).
This is the marginal cost of the added
unit.

Determine what the increase in total

If the unit’s marginal benefit exceeds
benefits would be if one more unit of the
control variable were added. (or equals) its marginal cost, it should
be added.
This is the marginal benefit of the added
unit.

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 KEY PROCEDURES
FOR USING
MARGINAL ANALYSIS
Remember to look at the changes in total benefits
and total costs.

If a particular cost or benefit does not change,

IGNORE IT!

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Why Does This Work?

Because:
Marginal Benefit = Increase in Total Benefits per
unit of control variable
TR / Qcv = MR
Where cv = control variable

Marginal cost = Increase in Total cost per unit of

control variable

TR / Qcv = MR
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Why Does This Work?

So:
Change in Net Benefits = Marginal Benefit – Marginal Cost

 When marginal benefits exceed marginal cost, net benefits

go up.
 Therefore, the marginal unit of the control variable should be
added.

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Summary
 Marginal analysis forms the basis of economic reasoning.
 To aid in decision-making, marginal analysis looks at the
effects of a small change in the control variables.
 Each small change produces some good and some bad.
 As long as there is more “good” than “bad”, the control
variable should be increased (since net benefits will then be
increased).

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 GROUP 2
Reporter:
Cedenio, Lour Margarette

Thank You
Tarrayo, Adrienne
Researcher:
Cabal, Kathleen Dimple
Prado, Christine Mae
Quiz Maker: And
God Bless!
Prietos, Christy Ann
Powerpoint Maker:
Unabia, Mae Ann
Zapanta, Meryl Rose
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