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Basic Analysis of Demand and Supply
- 2. Basic Analysis ofDemand and Supply
- 3. Market Where buyers andsellers meet Where transactions take place
- 4. Where do transactionstake place?
- 5. Basic Analysis ofDemand and Supply
- 6. Demand Demand Desire to possess a thing Abilityto pay for it Willingness in utilizing it You cannot always buy them just by want/desire because you face constraints
- 8. Opportunity Cost • Everydecision to buy one thing is a choice NOT to buy the other. The option not chosen is the opportunity cost.
- 9. Basic Analysis ofDemand and Supply
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- 11. Ceteris Paribus • CeterisParibus is a Latin term for all other things being equal or held constant.
- 12. Validity and Justificationof Law of Demand
- 13. Basic Analysis ofDemand and Supply
- 14. Determinants of Demand •Factors that actually influence the quantity of demand.
- 15. Determinants of Demand Consumer’s Income Expectation ofFuture Prices Price of Related Products Occasional/S easonal Products Consumer Tastes Population Change C E PO CT PC
- 16. Consumers’ Income C E PO CT PC *changes demanddepending on the types of goods
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- 18. Determinants of Demand Consumer’s Income Expectation ofFuture Prices Price of Related Products Occasional/S easonal Products Consumer Tastes Population Change C E PO CT PC
- 19. Expectations of FuturePrices • Prices expected in future periods C E PO CT PC
- 20. Determinants of Demand Consumer’s Income Expectation ofFuture Prices Price of Related Products Occasional/S easonal Products Consumer Tastes Population Change C E PO CT PC
- 21. Prices of RelatedProducts • Changes in prices of related goods • The direction in which demand would change depends on the relationships of products. C E P O CT PC
- 22. Relationships of Products Goodsthat can be used in place of other goods Gasoline and LPG Substitute Products Goods that go together/cannot be used without the other Mini4WD and Accessories Complementary Products C E P O CT PC
- 23. Determinants of Demand Consumer’s Income Expectation ofFuture Prices Price of Related Products Occasional/S easonal Products Consumer Tastes Population Change C E PO CT PC
- 24. Occasional/Seasonal Products • Demandincreases in various events/seasons in a given year C E PO CT PC
- 25. Determinants of Demand Consumer’s Income Expectation ofFuture Prices Price of Related Products Occasional/S easonal Products Consumer Tastes Population Change C E PO CT PC
- 26.
- 27. Determinants of Demand Consumer’s Income Expectation ofFuture Prices Price of Related Products Occasional/S easonal Products Consumer Tastes Population Change C E PO CT PC
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- 29. Basic Analysis ofDemand and Supply
- 30. Demand Function • Formulafor showing the relationship between demand and its determinants • 𝑄 𝑑 = 𝑓 (𝑃𝐺𝑆, 𝐼, 𝐸𝑐, 𝑃𝑅𝑃, 𝑇𝑐, 𝑃𝑜𝑝) • Where: – PGS = Price of good/service – I = Income – Ec = Consumer’s Expectations – PRP = Price of Related Products – Tc = Consumer’s Tastes – Pop = Population
- 31. Demand Schedule • Tableshowing the relationship of price and demand Points Price (Millions) Quantity Demanded A 0 4000 B 1 3500 C 2 3000 D 3 2500 E 4 2000 F 5 1500 G 6 1000 H 7 500
- 32. Demand Curve • Graphof the price and demand ceteris paribus 0 1 2 3 4 5 6 7 8 0 500 1000 1500 2000 2500 3000 3500 4000 4500 Price Quantity Demanded
- 33. Basic Analysis ofDemand and Supply
- 34. Supply Supply Goods/services willing to sell Servicessold at given price to maximize profit Maximum quantity of goods producers are willing to offer You cannot always sell them just to maximize profit because you face constraints
- 36. Market Price • Itis the price that the sellers can charge their product in a competitive market.
- 38. Cost of Production •The costs of the production process and the prices of inputs that they have used to make the product
- 39. Basic Analysis ofDemand and Supply
- 40. Law of Supply PriceSupply *Ceteris Paribus Because ↑ Price = ↑Profit
- 41. Basic Analysis ofDemand and Supply
- 42.
- 43. Technological Change Production Cost Supply *because profitincreases as supply increases *Due to state-of- the-art machineries able to mass produce goods/services
- 44. Cost of InputsUsed Cost of Production Quantity supplied *because profit decreases as supply decreases
- 45. Future Price Expectations Thefuture expectation of price is to go up Keep goods till the price rises Price Supply
- 46. Price of RelatedProducts • Changes in the supply of goods have significant effect in the supply of such goods.
- 47. Optimization of ProductionFactors • The process/methodology of making something as fully perfect, functional, or effective as possible. • Efficient use of resources
- 48. Gov’t Regulation andTaxes Tax Production Cost Profit Supply
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- 51. Number of Firmsor Sellers in the Market Dealers Supplies Profit
- 52. Basic Analysis ofDemand and Supply
- 53. Supply Function • Formulafor showing the relationship between Supply and its determinants • 𝑄𝑠 = 𝑓 (𝑃𝐺𝑆, 𝑇, 𝐶𝐼, 𝑃𝐸, 𝑃𝑅𝑃, 𝑂𝐹𝑃, 𝑇𝐺𝑅, 𝑆 𝐺 , 𝑊, 𝑁𝐹) • Where: – PGS = Price of good/service – T = Technology – CI = Cost of Inputs – PE = Expectation of Future Price – PRP = Price of Related Products – OFP = Optimization of Factors of Production – TGR = Gov’t Regulations and Taxes – SG = Gov’t Subsidies – W = Weather Conditions – NF = Number of Firms in the Market
- 54. Supply Schedule • Tableshowing the relationship of Price and Supply Points Price (Millions) Quantity Supplied A 0 -2000 B 1 -1000 C 2 0 D 3 1000 E 4 2000 F 5 3000 G 6 4000 H 7 5000
- 55. Supply Curve • Graphof the price and Supply ceteris paribus -2000, 0 -1000, 1 0, 2 1000, 3 2000, 4 3000, 5 4000, 6 5000, 7 0 1 2 3 4 5 6 7 8 -3000 -2000 -1000 0 1000 2000 3000 4000 5000 6000 Price(millions) Quantity Supplied Price
- 56. Basic Analysis ofDemand and Supply
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- 60. Equilibrium using Demandand Supply Schedule Points Price (millions) Quantity Demanded Quantity Supplied State of Market Pressure on Price A 0 4000 -2000 Shortage -5000 Upward B 1 3500 -1000 Shortage -4500 Upward C 2 3000 0 Shortage -3000 Upward D 3 2500 1000 Shortage -1500 Upward E 4 2000 2000 Equilibrium 0 Neutral F 5 1500 3000 Surplus 1500 Downward G 6 1000 4000 Surplus 3000 Downward H 7 500 5000 Surplus 4500 Downward
- 61. Equilibrium using Demandand Supply Curves 0 1 2 3 4 5 6 7 8 -3000 -2000 -1000 0 1000 2000 3000 4000 5000 Price(Millions) Quantity Demanded Demand Supply Equilibrium Point What happens when there is a market disequilibrium?
- 63.
- 64. Shortage 0 1 2 3 4 5 6 7 8 -3000 -2000 -10000 1000 2000 3000 4000 5000 QuantitySupplied Quantity Demanded Demand Supply Shortage Prices have the tendency to go UP to restore the equilibrium (without government intervention)
- 65. Equilibrium using Demandand Supply Schedule Points Price (millions) Quantity Demanded Quantity Supplied State of Market Pressure on Price A 0 4000 -2000 Shortage -5000 Upward B 1 3500 -1000 Shortage -4500 Upward C 2 3000 0 Shortage -3000 Upward D 3 2500 1000 Shortage -1500 Upward E 4 2000 2000 Equilibrium 0 Neutral F 5 1500 3000 Surplus 1500 Downward G 6 1000 4000 Surplus 3000 Downward H 7 500 5000 Surplus 4500 Downward
- 67.
- 68. Surplus 0 1 2 3 4 5 6 7 8 -3000 -2000 -10000 1000 2000 3000 4000 5000 QuantitySupplied Quantity Demanded Demand Supply Surplus Prices have the tendency to go DOWN to restore the equilibrium (without government intervention)
- 69. Equilibrium using Demandand Supply Schedule Points Price (millions) Quantity Demanded Quantity Supplied State of Market Pressure on Price A 0 4000 -2000 Shortage -5000 Upward B 1 3500 -1000 Shortage -4500 Upward C 2 3000 0 Shortage -3000 Upward D 3 2500 1000 Shortage -1500 Upward E 4 2000 2000 Equilibrium 0 Neutral F 5 1500 3000 Surplus 1500 Downward G 6 1000 4000 Surplus 3000 Downward H 7 500 5000 Surplus 4500 Downward
- 70. Basic Analysis ofDemand and Supply
- 71. Market Interference • utilizedsupply and demand models are only possible in an unregulated market • In real world situations, governments around the world try to control prices because: –Some sectors do not benefit –Some sectors take advantage of price controls
- 72. Price Control • Specificationof MINIMUM PRICE and/or MAXIMUM PRICE of goods and services by the government.
- 74. Price Ceiling • Legalmaximum price imposed by the government. • Used only by the government if there is a persistent SHORTAGE OF GOODS
- 75. Price Ceiling 0 1 2 3 4 5 6 7 8 -3000 -2000-1000 0 1000 2000 3000 4000 5000 QuantitySupplied Quantity Demanded Demand Supply *to protect the consumers from the rising price of supplies
- 77. Price Floor • LegalMINIMUM PRICE imposed by the government. • Used only by the government if there is a persistent SURPLUS OF GOODS
- 78. Price Floor 0 1 2 3 4 5 6 7 8 -3000 -2000-1000 0 1000 2000 3000 4000 5000 QuantitySupplied Quantity Demanded Demand Supply *to protect the producers from the falling price of supplies
- 79. Humans and animalsare both selfish. They virtually don’t care about others. They say clever things, make relationships where both sides use each other, and look for a way to profit themselves while limiting the loss for the other group.