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Applied Economics

Chapter 2 – Application of Law of Supply and


Demand
Demand

• Buyers or Consumers are sometimes called demanders.


• Consumers are said to “demand” products in the market
place.
• Demand refers to the consumption behavior of buyers in the
market.
• Demand also means the willingness to pay of consumers at
various prices and quantities.
Demand
• Prices are the tools by which the market coordinates
individual desires.
Change in Quantity Demanded

$2 B
Price (per unit) Change in quantity demanded
(a movement along the curve)

A
$1

D1
0
100 200
Quantity demanded (per unit of time)
Shift in Demand

Change in demand
$2 (a shift of the curve – in this
Price (per unit) case a decrease in demand)

B A
$1

D0

D1
100 200 250
Quantity demanded (per unit of time)
The Law of Demand

• As the price gets higher, people want less of a


particular product

Price
$40

$30

$20

$10
Quantity
10 20 30 40 50 60 70

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Demand Curves Can Change
• Fashions, technology, new information, etc. can all shift the demand
curve.

Price
$40

$30

$20

$10
Quantity
10 20 30 40 50 60 70

10
Supply
• Individuals control the factors of production.
• Factors of production are the resources or inputs,
necessary to produce goods or services.
• Individuals supply factors of production to
intermediaries or firms.
Supply
• The analysis of the supply of produced
goods has two parts:
– An analysis of the supply of the factors
of production to firms.
– An analysis of why firms transform
those factors of production into final
goods and services.
A Sample Supply Curve

Price (per unit)


S

A
PA

0
QA
Quantity supplied (per unit of time)
Shift in Supply
S0
S1

Price (per unit)

A B Shift in Supply
$15 (a shift of the curve
– in this case an
increase in supply)

1,250 1,500
Quantity supplied (per unit of time)
Change in Quantity Supplied
S0

Price (per unit)


B

Change in quantity
A supplied (a movement
$15
along the curve)

1,250 1,500
Quantity supplied (per unit of time)
The Supply Curve

• As the price gets higher, suppliers are willing to


supply more of a product

Price
$40

$30

$20

$10
Quantity
10 20 30 40 50 60 70

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Equilibrium

Price
$40
Demand Supply
$30

$20

Quantity
$10
10 20 30 40 50 60 70

This represents what the price is at the


moment in the marketplace. 30
Measuring Economic Performance
• Economic Indicators
• Gross domestic product (GDP)
• Inflation
• Deflation
• Unemployment rate
• Consumer price index (CPI)
• Producer price index (PPI)

Introduction to Business Management 31


Common Measures Used to Evaluate
a Nation’s Economic Health
Business Cycle

“ …the recurrence of periods


of growth and recession in a
nation’s economic activity.

Four Different Types of Market
Structures or Competition
Contemporary Economic Issues Facing the
Filipino Entrepreneurs:

1. Investment and Interest Rate


2. Rentals
3. Minimum Wage
4. Taxes