DEMAND AND SUPPLY.pptx

A B M 0 0 1 . C H A P T E R 2
Application
ofDemandandSupply
More at slideshare.net/RomlaineOlaso1/presentations

Objectives
1. explain the law of supply and demand, and how equilibrium price and quantity are
determined;
2. discuss and explain factors affecting demand and supply;
3. compare the prices of commodities and analyze the impact on consumers;
4. explain market structures (perfect competition, monopoly, oligopoly, and monopolistic
competition).

Basic Principles of
DEMAND & SUPPLY
•The Market
•Demand
…The Law of Demand
…Non-Price Determinants of Demand
…Shifts of Demand Curve
•Supply
…The Law of Supply
…Non-Price Determinants of Supply
…Shits of Supply Curve
Lesson 2.1
Application of Demand and Supply
Lesson 2.3
Lesson 2.2
Demand and Supply in Relation to the
PRICE OF BASIC COMMODITIES
•Market Equilibrium
•Application of Demand and Supply in
Relation to Housing Shortage
ELASTICITY of
Demand and Supply
•Elasticity of Demand
…Price Elasticity of demand
…Income Elasticity of Demand
…Cross Price Elasticity of Demand
•Price Elasticity of Supply
cHAPTERtWO

Lesson2.1
• Market
An interaction between buyers and sellers of trading or exchange.
 goods market
 labor market
 finance market
cHAPTERtWO

Basic Principles of
DEMAND & SUPPLY
•The Market
•Demand
•Supply
Lesson 2.1
Application ofDemandandSupply
Lesson 2.2
ELASTICITY of
Lesson 2.3
Demand and Supply
cHAPTERtWO

able
Lesson2.1 cHAPTERtWO
• Demand
Indicates how much of a product consumers are willing and
to buy at each period of time, other things constant.
A demand function shows how the quantity
demanded of good depends on it’s determinants
the most important of which is the price of goods
itself.
The demand curve is a graphical illustration of the
demand schedule with the price measured on
vertical axis (Y) and the quantity demanded
measured on the horizontal axis (X).
Consumer demand
and consumer
wants are not the
same thing.

able
• Demand
to buy at each period of time, other things constant.
Price Demand Schedule of Rice Supply Schedule of Rice
4 71 25
6 65 35
8 59 45
10 55 55
12 54 65
14 53 75
16 52 85

• Demand
able to buy at each period of time, other things constant.
The negative relationship between price and quantity demanded
regularly observed in various markets.
What changes the Demand?
 Substitution Effect
 Income Effect
 Diminishing Marginal
Utility
The Law of Demand
Using theassumption,“
centerisparibus”which
meansallotherrelated variablesexeptthat are
beingstudiedat themoment and areheld
constant.

• Demand
Non-Price Determinants of Demand
D = f ( P
, T
, Y
, E, PR, NC )
..demand for a good is a function of price,
taste, income, expectations, price of related
goods and number of consumers.
An increase in the value that
people place on hamburgers*
would lead them to buy more each
and every price.
When people become
health conscious, some of
might choose to buy
more
them
fewer
hamburgers at each time.
Improved taste for a product will
cause a consumer to buy more of
that good even if it’s price does not
change.

• Demand
D = f ( P
, T
, Y
, E, PR, NC )
income,
taste, expectations, price of related
An increase
consumers to
in income leads
buy more of most
goods at each and every price. vice
versa.
A good for which demand increases
when income increases is called a
normal good.
A good for which demand
decreases when income increases is
called an inferior good. An increase in
income may lead some consumers to
buy fewer of a specific good because
they can now afford better-quality
products.

• Demand
D = f ( P
, T
, Y
, E, PR, NC )
Consumers tend to anticipate changes
in the price of a good.
Ex:
OIL PRICE HIKE and ROLLBACK

• Demand
D = f ( P
, T
, Y
, E, PR, NC )
Substitute goods are those that are used
in place of each other.
Complement goods are goods that are
used together.

• Demand
D = f ( P
, T
, Y
, E, PR, NC )
Population makes the group of the
costumers who will buy the product.

P120
100
80
60
40
20
0
20 40 60 80 100 120
INCREASE IN DEMAND
DECREASE IN DEMAND
• Demand
Shifts of Demand Curve

Surfboards
Qd
10 pcs
2pc7
s pcs
• Demand
Shifts of Demand Curve
P
3,500 php

•Supply
…Shifts of Supply Curve
Basic Principles of
DEMAND & SUPPLY
•The Market
•Demand
Lesson 2.1
Lesson 2.3
Lesson 2.2
ELASTICITY of
Demand and Supply
cHAPTERtWO

• Supply
-Refers to the quantity fi goods
that a seller is willing to offer for
sale.
- Supply is a
fundamental economic concept
that describes the total amount
of a specific good or service that
is available to consumers.
Supply can relate to the amount
available at a specific price or the
amount available across a range
of prices.
Price D
Supply
Schedule of
Rice
4 71 25
6 65 35
8 59 45
10 55 55
12 54 65
14 53 75
16 52 85

Price D
Supply
Schedule of
Rice
4 71 25
6 65 35
8 59 45
10 55 55
12 54 65
14 53 75
16 52 85
• Supply
sale.
• Law of Supply
-As the price increases, the
quantity supplied of that product
also increases.
*the high price of the good
serves as motivation for the
seller to offer more for sale.

• Supply
sale.
• Law of Supply
-As the price increases, the
quantity supplied of that product
also increases.
*the high price of the good
serves as motivation for the
seller to offer more for sale.
• Non Price Determinants of Supply
DS= f ( P
, C T
, A, R ),
• Cost of Production
• Technology
• Availability of Raw Materials
• Price of Resources
• Number of Producers
• Technology
• Taxes
• Expectations

Lesson 2.1
Basic Principles of
DEMAND & SUPPLY
•The Market
•Demand
…Non-Piece Determinants of Demand
…Shits of Demand Curve
•Supply
…Non-Piece Determinants of Supply
Lesson 2.2
Lesson 2.3
ELASTICITY of
Demand and Supply
cHAPTERtWO
•The Market
•Demand
•Supply
Lesson 2.1
Basic Principles of
DEMAND & SUPPLY

A. PRICES OF BASIC COMMODITIES

PRICES OF BSIC COMMODITIES
Commodities are raw materials or primary agricultural
products that can be bought and sold in the market like
corn, wheat, copper, crude oil, etc.

BASIC CONSUMER GOODS IN PHILIPPINES
A. Oil Products like gasoline, diesel, liquefied
petroleum gas (LPG)
B. Processed and Manufactured Commodities
Canned goods, processed milk, instant noodles,
bread, commercial rice, sugar, cooking oil, meat and
poultry, fish vegetables, basic medicines.

WHAT CAUSES COMMODITIES PRICE TO
CHANGE?
1. When supply exceeds demand, prices fall and when demand is greater
than supply prices rise.
2. Natural disasters can also cause prices to change like the El Niño and La
Niña climate phenomenon, volcanic
eruptions, earthquakes, typhoon, and landslide, among others.
3. Production costs can also cause price to rise or fall like the
implementation of Salary Standardization Law and
Minimum Wage Law, and the shifting of production from human to
technology.

B. LABOR SUPPLY, POPULATION
GROWTH AND WAGES

LABOR FORCE – is defined as the people who are willing and able to
work. The labor force population consists of the employed and the
unemployed 15 years old and over. People under the age of 15,
students, retirees, the disabled, homemakers, and the voluntarily idle
are not included in the labor force.

LABOR FORCE = EMPLOYED + UNEMPLOYED
The size of the labor force is used to determine the unemployment rate.
UNEMPLOYMENT RATE= 100
*








LABORFORCE
UNEMPLOYED

DEMAND AND SUPPLY.pptx

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