Introduction to Economics with TAR

DEMAND AND SUPPLY: BASIC ELEMENTS

THE CONCEPT OF DEMAND DEMAND quantity of a good and service that consumers or the buying public are willing and able to purchase. THE LAW OF DEMAND
o

states that as the price of a commodity decrease, ceteris paribus (i.e., everything else unchanged), and the quantity of the product that buyers would be able and willing to buy increases.(pag marami ang supplies, mababa ang presyo.) the quantity demanded for a commodity or service is NEGATIVELY OR INVERSELY related to its own price. Thus, when the price of good rises, the quantity demanded falls, and when the price falls, the quantity demanded rises.

DEMAND SCHEDULE the quantities consumers are willing to buy of a good at various prices. (table comparing price and demand: a table or graph showing the quantity of a product that is demanded at selected prices) MARKET a place where buyers and sellers interact and engage in exchange (the whole area of economic activity in which the laws of supply and demand operate, often thought of as a regulatory force affecting both economic and political affairs.)

Table 1.1 DEMAND SCHEDULE table comparing price and demand: a table or graph showing the quantity of a product that is demanded at selected prices

PRICE per Unit 25 20 15 10 5 0

Quantity Demand 0 1 2 3 4 5
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Introduction to Economics with TAR

Three reasons why the price-quantity relationship depicted in a demand curve is inverse or negative:
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Opportunity cost since most goods that we consume are not free, the price becomes an obstacle to consumption and when valued in terms of the other goods and services that must be sacrificed and therefore, less consumers would want to buy the good.

(cost of business decision made: the cost of a commercial decision regarded as the value of the alternative that is forgone. For example, if the choice is between using a machine or scrapping it, the opportunity cost is the scrap value.)

Purchasing Power refers to the budget of the consumer. ( (ability to spend: the ability to make purchases according to income and savings..
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o Price is high each successive unit of good consumed yields less satisfaction (benefit) at any specific time period.

CHANGE IN QUANTITY DEMAND

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The change in price results in changes in quantity demanded. If there is an increase in price, buyers respond by lowering the quantity they want to buy of the good and services. The reverse happens when the price decreases. (So dito,pa gung price ng mgs goods or services increases

MARKET DEMAND - the total demand for a good or service. It is the sum of the demand of all individuals buyers. SHIFTS IN THE DEMAND CURVE Although the price of the good is probably the most important factor affecting quantity demanded, it is not the sole factor that affects demand because when we defined the demand-price relationship, other factors were held constant. These factors include: o o Consumers Income Prices of related goods in consumption,
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Introduction to Economics with TAR

o o o o

Consumers taste and preferences Consumer expectations Unexpected Events (typhoon, earthquakes) Numbers of buyers

NORMAL GOODS are products whose demand increases as income increases or whose demand decreases. (products whose consumption increases with income: products that are bought in greater quantities or numbers as income increases.) INFERIOR GOODS are products whose demand decreases when a consumers income increases. BUSINESS item bought less often: a good with a level of consumption that decreases as income rises
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SUBSTITUTE GOOD a good that can be used in place of another good. interchangeable goods: goods that are more or less interchangeable to the consumer, so that an increase in the price of one increases demand for the other.

COMPLEMENTARY GOOD a good that is consumed along with another good.

goods used together: two goods that are typically used at the same time, e.g. cars and gasoline, so that a change in demand for one has a direct effect on the other

THE CONCEPT OF SUPPLY SUPPLY quantity of a commodity that sellers are willing to sell. THE LAW OF SUPPLY o states that the higher the price, the higher the amount or quantity of a good that will be supplied by firms or producers.
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the lower the price, the lower the quantity of a good that will be brought to the market. Thus the price and quantity supplied of a good are POSITIVELY OR DIRECTLY RELATED.

SUPPLY SCHEDULE the quantities producers are willing to offer for sale at various prices.
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Introduction to Economics with TAR

SURPLUS an excess of supply over the demand for a good. Table 1.2 SUPPLY SCHEDULE PRICE per Unit 0 5 10 15 20 25 Quantity Supply 0 2 4 6 8 10

CHANGES IN QUANTITY SUPPLIED - A movement along the supply curve occurs when the price of the good changes, causing the quantity supplied by firm to change. MARKET SUPPLY - tell how much all the firms in the market would be produce at each price.

SHIFTS IN THE SUPPLY CURVE Variables that affect supply: o Technology o Cost of production o The number of firms in the market o Expectations of future prices o Government taxes, subsidies, and regulations SHIFT OF THE CURVE a change in the entire curve caused by a change in the entire demand or supply schedule MOVEMENT ALONG THE CURVE a change from one point to another o the same curve EQUILIBRIUM condition of balance or EQUALITY

Introduction to Economics with TAR

Figure 1.1 THE DEMAND CURVE

P 25

20

Price per unit

15

10

D 1 2 3 Quantity Demand 4 5

Figure 1.2 THE SUPPLY CURVE

Introduction to Economics with TAR

P 25

20

Price per unit

15

10

D 1 2 3 Quantity Supply 4 5