DEMAND
AND
SUPPLY
DEMAND
It is the quantity of a good that consumers are
willing and able to purchase at various prices
during a given time.
Demand is generally affected by the behavior of
consumers.
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Demand
pertains to the
quantity of a Willingness to buy
good or service 1
that buyers are
willing and able
to buy at given
prices within a
given time Ability to pay
period. So,
there are two
components of
3
demand:
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LAW OF DEMAND
The law of demand is a There is an inverse
fundamental principle of relationship between
economics that states that,
ceteris paribus, at a higher
price and quantity
price consumers will demanded.
demand a lower quantity of
a good or services and vice
versa.
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LAW OF DEMAND
In other words, the higher the price, the lower the
quantity demanded, vice versa.
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LAW OF DEMAND
Ceteris paribus is a Latin phrase that means "all other
things being equal." Experts use it to explain the
theory behind laws of economics and nature. It means
that something will occur as a result of something else
most of the time, if nothing else changes.
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Example:
Suppose that the price of Trek’s chocolate bar is ₱80.
At this price, you'll likely buy four bars or more. If the
price of Trek’s chocolate bar is ₱120, you'll likely buy
three bars. But if the price of Trek’s chocolate bar is
₱200, you'll likely buy fewer bars—perhaps only one.
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MARKET
When there is A market is
demand for a good
or service, there is where buyers
a market. and sellers
meet.
It is the place It is where
where they both
their
trade or
exchange goods transaction
or services. takes place.
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METHODS OF DEMAND ANALYSIS
1
2 1
Demand Curve
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• The demand curve is Demand Function
a graphical
Demand Schedule representation • Demand function is
showing the a mathematical
• A demand schedule is a relationship between function showing
table that shows the price and quantities relationship between
relationship of prices and demanded per time the quantity
the specific quantities period. demanded of a
demanded at each of 3
commodity and the
these prices. factors influencing
demand.
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DEMAND SCHEDULE
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DEMAND CURVE
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DEMAND FUNCTION
Demand function is a mathematical function showing relationship
between the quantity demanded of a commodity and the factors
influencing demand.
Dx = f (Px, Py, T, Y, Pp, Ep)
Dx = Quantity demanded of a commodity
Px = Price of the commodity
Py = Price of related goods
T = Tastes and preferences of consumer
Y = Income level
Pp = Population (Size of the market)
Ep = Consumer’s expectations about future prices
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DEMAND FUNCTION
The quantitative relationship between Dx and Px is expressed as:
Dx = a – bPx
Where:
Dx = Quantity demanded of a commodity
a = (intercept) quantity demanded at zero price
b = slope or the relationship between Dx and Px
Px = Price of the commodity
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DEMAND FUNCTION
For example, let us assume a = 50, b = 2.5, and P x= 10:
Dx = a – bPx
Dx = 50 – 2.5 (10)
Dx= 25 units
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CHANGE IN QUANTITY DEMANDED
VS. CHANGE IN DEMAND
Change in the quantity
demanded results from
a change in price. A
change in the quantity
demanded is illustrated
by movement along the
demand curve from one
point to another.
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CHANGE IN QUANTITY DEMANDED
VS. CHANGE IN DEMAND
Change in demand occurs when the
demand for a good or service
changes not because the price of the
good changes, but because
something else in the market
changes. These could be changes in
consumer expectations; consumer
preferences; the number of
consumers in the market; consumer
income; or the prices of related
goods, which can be either
complementary or substitute goods. A
change in demand is illustrated by
shifting the demand curve left or right.
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NON-PRICE DETERMINANTS
OF DEMAND
1. Prices of related commodities
2. Income of the individual
3. Tastes and preferences
4. Expectations regarding the future
5. Weather conditions
6. Number of consumers in the market
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SUPPLY
Economists define supply as the quantity
of a good or service that firms or
producers are willing and able to offer for
sale at a given price within a period of
time.
It is a product made available for sale by
firms.
It should be remembered that sellers
normally sell more at a higher price than
at a lower price.
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LAW OF SUPPLY
The economic law of There is a direct
supply states that, relationship
ceteris paribus, as between price and
the price of a good or quantity: quantities
service increases, the respond in the
quantity supplied of same direction as
goods or services price changes.
increases and vice
versa.
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METHODS OF SUPPLY ANALYSIS
1
2 1
Supply Curve
3
• A supply curve is a graphical
Supply Function
representation showing the
relationship between the
• The supply function is
Supply Schedule price of the product sold or
a mathematical
factor of production and the
quantity supplied per time equation that
• A supply schedule period. expresses the quantity
shows how much of a of a commodity
good or service supplied as the
producers will supply function of the
at different prices. 3 commodity's price.
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SUPPLY SCHEDULE
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SUPPLY CURVE
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SUPPLY FUNCTION
The supply function is a mathematical equation that expresses the
quantity of a commodity supplied as the function of the commodity's
price.
Sx = f (Px, Py, Pf, St, Gp, Pp, Ep)
Sx = Quantity demanded of a commodity
Px = Price of the commodity
Py = Price of related goods
Pf = Prices of factors of production.
St= State of technology
Gp = Government policy
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SUPPLY FUNCTION
The quantitative relationship between Sx and Px is expressed as:
Sx = a + bPx
Where:
Sx = Quantity supplied of a commodity
a = (intercept) quantity supplied at zero price
b = slope or the relationship between Sx and Px
Px = Price of the commodity
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DEMAND FUNCTION
For example, let us assume a = 0, b = 1.5, and P x= 10:
Sx = a + bPx
Sx = 0 + 1.5 (10)
Sx= 15 units
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CHANGE IN QUANTITY SUPPLIED
VS. CHANGE IN SUPPLY
Change in the quantity
supplied occurs when
there is a movement
along a given supply
caused by a change in
supply price. The only
factor that can cause a
change in quantity
supplied is price.
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CHANGE IN QUANTITY SUPPLIED
VS. CHANGE IN SUPPLY
Change in supply happens when the entire supply curve shifts
leftward or rightward. At the same price, therefore, less(more)
amounts of a good or service is supplied by producers or
sellers.
Figure 2.6a illustrates an increase in supply. In the figure, we
can see that the entire supply curve moves rightward (indicated
by the arrow) from S to S1. we can therefore observe that at the
point P0 more goods will be offered for sale by producers (from
Q0 to Q1)
On the other hand, supply decreases if the entire supply curve
shifts leftward. At the same price, fewer amounts of a good or
service are sold by producers. a decrease in supply illustrated
in figure 2.6b.We can see in the figure that the entire supply
curve shifts leftward (Indicated by the arrow) from S to S1. we
can also see that at the same price P0, supply from the product
will decrease (from Q1 to Q0).
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NON-PRICE
DETERMINANTS OF SUPPY
1. Optimization in the use of factors of production
2. Technological change
3. Future expectations
4. Number of sellers
5. Weather conditions
6. Government policy
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MARKET EQUILIBRIUM
When you combine the supply and demand curves, there is a point
where they intersect; this point is called market equilibrium. The price
at this intersection is the equilibrium price, and
1 the quantity is the
equilibrium quantity.
At the equilibrium price, there is no shortage or surplus.
Quantity of goods that buyers are willing and able to buy
=
3
Quantity of good that sellers are willing and able to sell
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EQUILIBRIUM MARKET PRICE
An equilibrium market price is the price agreed upon by the seller
to offer its goods or service for sale and for the buyer to pay for it.
Specifically, it is the price at which the quantity demanded of a
1
good is exactly equal to the quantity supplied of the same good.
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DISEQUILIBRIUM
If the market price is above or below the equilibrium price, the
market is in disequilibrium. Disequilibrium occurs when the
quantity supplied does not equal the quantity demanded. There
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are two conditions that are a direct result of disequilibrium:
SURPLUS SHORTAGE
-occurs when -occurs when
the quantity the quantity
supplied is demanded is
greater 3than greater than the
the quantity quantity
demanded. supplied.
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