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Basics in

Economic
s

Outline:

I. Demand and Supply


II.Elasticity
III.Production and Cost Theory
IV.Law of Diminishing Marginal
Returns

_____ and ______


Most fundamental concept
Backbone of market economy

Demand and Supply

______refers to how much (quantity) of a


product or service is desired by buyers.
The ________ ________is the amount of a product
people are willing to buy at a certain price.
The relationship between price and quantity
demanded is known as the ________ relationship.

Demand and Supply


The Law of Demand
If all other factors
remain equal, the
______ the price of a
good, the less people
will demand that good.

In other words, the

Determinants of Demand
1.Price
-increase Price = ________
Demand
2.Income -increase income = _______
demand
3.Prices of Other Goods increase price of
other goods = ________ demand for main
goods

Demand and Supply

_______represents how much the market can


offer.
__________ _________refers to the amount of a
certain good producers are willing to supply
when receiving a certain price.
The correlation between price and how much of
a good or service is supplied to the market is

Demand and Supply


The Law of Supply
Like the law of demand,
the law of supply
demonstrates the
quantities that will be
sold at a certain price.
But unlike the law of
demand, the supply
relationship shows an

Demand and Supply

______, therefore, is a
reflection of supply and
demand.

Demand and Supply

Other terms to be familiarized:

_________________
- the loss of potential gain from other
alternatives when one alternative is chosen
Hanna Garcia@hannaaasdfgjkl16Jul2015
_________:halagangbagaynahandangisukoobitawan
paramakamitangisangbagay#economicshugot

Supply and Demand


Relationship

Terms:
___________
- a concept in which
opposing dynamic
forces cancel each
other out.
________
- excess supply,

Supply and Demand


Relationship

Terms:
___________
quantity demanded
is greater than quantity
supplied.

Supply and Demand


Relationship

When price is $3.50,


quantity supplied is 7
and quantity demanded
is only 3. Excess supply
is 4. Individual
consumers can get all
they want, but most
suppliers cant sell all
they wish

Supply and Demand


Relationship

Say price is $1.50. The


situation is now
reversed. Quantity
supplied is 3 and
quantity demanded is
7. Excess demand is 4.
Now its consumers
who cant get what
they want and suppliers

Supply and Demand


Relationship

At $2.50, price is at its


equilibrium: quantity
supplied equals
quantity demanded.
Suppliers offer to sell 5
and consumers want to
buy 5, so theres no
pressure on price to
rise or fall.

Elasticity

The degree to which a demand or supply


curve reacts to a change in price
varies among products because some
products may be more essential to the
consumer.

Elasticity = (% change in
Elasticity quantity /
% change
in price)

If elasticity is greater than or equal


to one, the curve is considered to
be elastic.
If it is less than one, the curve is
said to be inelastic.

Elasticity = (% change in
Elasticity quantity /
% change
price)
A good or service is considered in
to be
highly elastic if
a slight change in price leads to a sharp change in the
quantity demanded or supplied. Usually these kinds of
products are readily available in the market and a
person may not necessarily need them in his or
her daily life.
On the other hand, an inelastic good or service is
one in which changes in price witness only modest
changes in the quantity demanded or supplied, if any

Elasticity = (% change in
Elasticity quantity /
% change
in price)

Elasticity = (% change in
Elasticity quantity /
% change
in price)

Elasticity Sample Problem


Problem :Yesterday, the price of envelopes was
P10a box, and Julie was willing to buy 200 boxes.
Today, the price has gone up to P20 a box, and Julie
is now willing to buy 100 boxes. Is Julie's demand for
envelopes elastic or inelastic? What is Julie's
elasticity of demand?
To find Julie's elasticity of demand, we need to divide
the percent change in quantity by the percent
change in price.

Sample Problem
Problem :Katherine advertises to sell cookies for
P50 a piece. She sells 1 dozen, and decides that she
can charge more. She raises the price to P75 a dozen
and sells half a dozen. What is the elasticity of
demand?
To find the elasticity of demand, we need to divide the
percent change in quantity by the percent change in
price.

Production and Cost Theory


Terms:
_______ An organization that brings together factors of
productionlabor, land, physical capital, human capital, and
entrepreneurial skillto produce a product or service that it
hopes can be sold at a profit
Goal of the firm: _____ ____________ Firms are expected to
try to make the positive difference between total revenues
and total costs as large as they can.

Production and Cost Theory


Production and Costs
To produce a good or a service a firm needs
economic resources orfactorsof production. In
economics, the factors of production used by a
firm in the production of a good or a service are
generally referred to as______.What a firm
produces is called______. A firm has to pay for the
inputs it needs. Therefore, inputs, on the one

Production and Cost Theory


We first study the relationship between inputs and
the output; that is _______ function".
Then we look at the relationship between
theoutputandcosts;that is _____ function.

Production and Cost Theory

References

http://www.investopedia.com/university/economics/e
conomics3.asp
http://www.hfcsd.org/webpages/tnassivera/files/c
olander_economics%20ch04%20supply%20and%20dema
.pdf
https://www.scribd.com/user/260151128/Teresita-Balg
os
http://www.investopedia.com/university/economics/e
conomics4.asp
http://www.sparknotes.com/economics/micro/elasticit
y/problems.html