Applied Economics Grp 4

(Summarized)
  Luxuries vs. Necessities- the demand for “necessities” tends to
be inelastic; the demand for “luxuries” tends to be elastic.
 Proportion of income- other things being equal, the larger a
commodity shares in one’s budget, the greater will be the
demand elasticity for it.

DETERMINANTS  Substitutability- the more substitutes there are for a commodity,

the greater the elasticity for demand.
OF THE
 Time horizon- the longer the interval of time considered, the
ELASTICITY OF more elastic the demand for the commodity.
DEMAND.  Availability of close substitutes- goods with close substitutes
tend to have more elastic demand because it is easier for
consumers to switch from that good to others.
 Definition of the market- the elasticity of demand in any market
depends on how we draw the boundaries of the market.
Necessities vs
Luxuries
  Luxuries vs. Necessities- the demand for “necessities” tends to
be inelastic; the demand for “luxuries” tends to be elastic.
 Proportion of income- other things being equal, the larger a
commodity shares in one’s budget, the greater will be the
demand elasticity for it.

 Substitutability- the more substitutes there are for a commodity,

Determinants of the greater the elasticity for demand.
the Elasticity of  Time horizon- the longer the interval of time considered, the
demand. more elastic the demand for the commodity.
 Availability of close substitutes- goods with close substitutes
tend to have more elastic demand because it is easier for
consumers to switch from that good to others.
 Definition of the market- the elasticity of demand in any market
depends on how we draw the boundaries of the market.
Proportion of
income
  Luxuries vs. Necessities- the demand for “necessities” tends to
be inelastic; the demand for “luxuries” tends to be elastic.
 Proportion of income- other things being equal, the larger a
commodity shares in one’s budget, the greater will be the
demand elasticity for it.

 Substitutability- the more substitutes there are for a commodity,

Determinants of the greater the elasticity for demand.
the Elasticity of  Time horizon- the longer the interval of time considered, the
demand. more elastic the demand for the commodity.
 Availability of close substitutes- goods with close substitutes
tend to have more elastic demand because it is easier for
consumers to switch from that good to others.
 Definition of the market- the elasticity of demand in any market
depends on how we draw the boundaries of the market.
Substitutability
  Luxuries vs. Necessities- the demand for “necessities” tends to
be inelastic; the demand for “luxuries” tends to be elastic.
 Proportion of income- other things being equal, the larger a
commodity shares in one’s budget, the greater will be the
demand elasticity for it.

 Substitutability- the more substitutes there are for a commodity,

Determinants of the greater the elasticity for demand.
the Elasticity of  Time horizon- the longer the interval of time considered, the
demand. more elastic the demand for the commodity.
 Availability of close substitutes- goods with close substitutes
tend to have more elastic demand because it is easier for
consumers to switch from that good to others.
 Definition of the market- the elasticity of demand in any market
depends on how we draw the boundaries of the market.
Time horizon
  Luxuries vs. Necessities- the demand for “necessities” tends to
be inelastic; the demand for “luxuries” tends to be elastic.
 Proportion of income- other things being equal, the larger a
commodity shares in one’s budget, the greater will be the
demand elasticity for it.

 Substitutability- the more substitutes there are for a commodity,

Determinants of the greater the elasticity for demand.
the Elasticity of  Time horizon- the longer the interval of time considered, the
demand. more elastic the demand for the commodity.
 Availability of close substitutes- goods with close substitutes
tend to have more elastic demand because it is easier for
consumers to switch from that good to others.
 Definition of the market- the elasticity of demand in any market
depends on how we draw the boundaries of the market.
The availability
of close
substitutes.
  Luxuries vs. Necessities- the demand for “necessities” tends to
be inelastic; the demand for “luxuries” tends to be elastic.
 Proportion of income- other things being equal, the larger a
commodity shares in one’s budget, the greater will be the
demand elasticity for it.

 Substitutability- the more substitutes there are for a commodity,

Determinants of the greater the elasticity for demand.
the Elasticity of  Time horizon- the longer the interval of time considered, the
demand. more elastic the demand for the commodity.
 Availability of close substitutes- goods with close substitutes
tend to have more elastic demand because it is easier for
consumers to switch from that good to others.
 Definition of the market- the elasticity of demand in any market
depends on how we draw the boundaries of the market.
  Limited amount of raw materials- the limited amount of
raw materials could limit the amount of a goods that can be
produced.
 Difficulty of producing goods- if the goods is very difficult
to produce to the producer, it becomes more inelastic.

 Production surplus- a producer with unused capacity will

respond immediately when price changes.
DETERMINANTS  Inventories- producer with a large number of goods can
OF ELASTICITY OF quickly increase the amount of supply it delivers to the
market.
SUPPLY
 Time period:
a. Market period- period of “unable to change the
quality”
b. Short run- period of “too short to allow or adjustments
to plan”
c. Long run- “has sufficient time respond to increase in
price”
 LIMITED
AMOUNT OF
RAW MATERIALS
  Limited amount of raw materials- the limited amount of
raw materials could limit the amount of a goods that can be
produced.
 Difficulty of producing goods- if the goods is very difficult
to produce to the producer, it becomes more inelastic.

 Production surplus- a producer with unused capacity will

respond immediately when price changes.
Determinants of  Inventories- producer with a large number of goods can
elasticity of quickly increase the amount of supply it delivers to the
market.
supply  Time period:
a. Market period- period of “unable to change the
quality”
b. Short run- period of “too short to allow or adjustments
to plan”
c. Long run- “has sufficient time respond to increase in
price”
DIFFICULTY OF
PRODUCING
GOODS
  Limited amount of raw materials- the limited amount of
raw materials could limit the amount of a goods that can be
produced.
 Difficulty of producing goods- if the goods is very difficult
to produce to the producer, it becomes more inelastic.

 Production surplus- a producer with unused capacity will

respond immediately when price changes.
Determinants of  Inventories- producer with a large number of goods can
elasticity of quickly increase the amount of supply it delivers to the
market.
supply  Time period:
a. Market period- period of “unable to change the
quality”
b. Short run- period of “too short to allow or adjustments
to plan”
c. Long run- “has sufficient time respond to increase in
price”
 orange
Orange
Qd (Quantity Qs (Quantity
P (Price)
Demand) Supplied)
SUPPLY AND 30 25 5
DEMAND: 40 20 10

MARKET 50 15 15
60 10 20
EQUILIBRIUM 70 5 25
  Occurs when the Quantity Demand is equal to the
MARKET quantity supply Qd = Qs at a given price.

EQUILIBRIUM
  Shortage situation in a market where buyers are willing
to buy more than the sellers are willing to supply at the
EXCESS prevailing price.

QUANTITY
DEMANDED P Q
  Is when the market quantity supplied at a good by
producers is higher than.

EXCESS QUANTITY
SUPPLIED P Q
 Price Below Qd > Qs SHORTAGE P Q
Market Equilibrium

SUMMARY
Price Above
Market Qd > Qs SURPLUS P Q
Equilibrium
  The equilibrium price is the market price where
the quantity of goods supplied is equal to the
WHAT CAN quantity of goods demanded. This is the point at
CHANGE which the demand and supply curves in the
EQUILIBRIUM market intersect. To determine the equilibrium
price, you have to figure out what price the
PRICE AND demand and supply curves intersect.
QUANTITY?
 WHAT CAN
CHANGE
EQUILIBRIUM
PRICE AND
QUANTITY?
 BASIC
COMMODITIES
  - commodities are raw materials or primary
agricultural products that can be bought and sold
in the market like corn, wheat, copper and crude
oil.
 explanation: In this title we will know the price
PRICE OF BASIC of basic commodities in our country. When we

COMMODITIES say commodities its a raw materials na dipa

gawa at gagawin palamang, you can bought it
in the market theie are raw materials that they
sold.
 A. Oil products like gasoline, diesel, liquefied
petroleum gas (LPG)
B. B.Processed and na Manufactured
Commodities
 1.Canned goods
 2.processed milk
BASIC  3.Instant noodles
CONSUMER  4.Bread
GOODS IN THE  5.Commercial rice
PHILIPPINES  6.Sugar
 7.Cooking oil
 8.Meat and poultry
 9.Fish and vegetable
 10.Basic medicine
  When supply exceeds demand, price fall and when demand is
greater than supply price rise.
•When people's income increase, their purchasing power increase
and result greater demand for commodities to make their life
comfortable.
•Demand for crude oil and gasoline increases as more people buy
automobiles, demand for gold increase because of greater
WHAT CAUSES demand of jewelries, and greater demand for commercial rice,
meat, poultry products, sugar and coffee, among others.
COMMODITIES
•Change in technology and decrease in production cost, output
PRICE TO increases. with the increase in supply of goods, the company
CHANGE needs to decrease their price to sell their surplus.
 Natural disaster can also cause prices to change like the El Niño
and La Niña climate phenomenon, volcanic eruptions,
earthquakes, typhoon and landslides, among others.
 Production cost can also cause price to rise or fall like the
implication of salary standardization Law and minimum wage law,
and the shifting of production from human to technology.
  Consumers will benefits from low prices In the form of
Cheaper gas or diesel, cheaper utilities and lower
inflation.
 Consumers will benefits from low prices of goods and
ADVANTAGES OF services.

RISING AND  Industries like manufacturing, mining and trade will

benefit due to decrease in production costs.
FALLING OF  Producer’s profit will increase due to increase in prices
PRICE OF of their output.
COMMODITIES  Government income In the form of taxation will
increase due to increase in business and employment
opportunities from both public and private sectors.
  Falling oil process will hurt the economies of oil
producing countries Brazil, Middle east and Russia.
 Low prices will discourage investors/producers to
DISADVANTAGES Invest/produce.
OF RISING AND  Government will be affected by falling prices of oil in
FALLING OF the middle east. The overseas Filipino workers ( OFW )
remittances will decline due to freeze hiring or outright
PRICE OF layoffs.
COMMODITIES  Unemployment will increase and government income
will be affected When the OFW’S Working in the oil
Producing countries return to their mother countries.
 WHAT CAN BE  Over production can be controlled by allocating
DONE TO production quotas to producers. Quotas are agreed
quantities that individual producers must produce, and
STABILIZE PRICE a quota system can help prevent over or under
OF BASIC production in response to economic shocks.

COMMODITIES
  Once trade is allowed, the domestic price
falls equal to the world price.

INTERNATIONAL  The supply shows the product produced

TRADE IN AN domestically.
IMPORTING
COUNTRY  The demand shows the product
consumed domestically.
INTERNATIONAL  Trade always consider the gains &
TRADE IN AN losses of a business.
IMPORTING
L
COUNTRY G
A
O
S
I
S
N
E
S
S
  When trade forces the domestic price to fall,
domestic consumer are better off.
 Imports equal the difference between the
domestic quantity supplied at the world price.

INTERNATIONAL  When a country allows trade and becomes an

TRADE IN AN importer of a good, domestic consumers are
better off and domestic producers of the good are
IMPORTING worse off.
COUNTRY  Trade raises the economic well-being of a nation
in the sense that gains of the winners and the
losses of the losers.
  9-1A THE EQUILIBRIUM WITHOUT TRADE

DETERMINANTS  9-1B THE WORLD PRICE AND COMPARATIVE

ADVANTAGE
OF TRADE
  Equilibrium- is a situation in which economic forces
such as supply and demand are balanced and in the
absence of external influences the values
9-1A THE of economic variables will not change
EQUILIBRIUM  Trade- involves the transfer of goods or services from
WITHOUT TRADE one person or entity to another, often in exchange for
money. A system or network that allows trade is called a
market.
 As figure 1 shows, the domestic PRICE ADJUSTS to
BALANCE the quantity supplied by domestic sellers
and the quantity demanded by domestic buyers.
9-1B THE WORLD
PRICE AND
COMPARATIVE
ADVANTAGE
  To analyze the welfare effects of free trade, the
Isolandian economists begin with the assumption that
Isoland is a small economy compared to the rest of the
world. Isoland can be an exporting country by selling
GAINS AND textiles at this price or an importing country by buying
LOSSES OF AN textiles at this price.

EXPORTING  Once trade is allowed, the domestic price rises to equal

the world price. No seller of textiles would accept less
COUNTRY than the world price, and no buyer would pay more than
the world price.