5. OBJECTIVES:
At the end of this lesson, the students must be able to:
• Define what is Demand and Supply;
• Illustrate and explain the Law of Demand and
Supply;
• Specify how the price quantity is determined.
6. The Law of Demand and Supply
Market
• Is an interaction between the buyers
and the seller of trading or exchange.
It is where the consumer buyers and
seller sells.
Goods market
• Is the most common type of
market because it is where we
buy consumers goods.
7. Labor market
• Is where workers offer services and look
for jobs , and where employers look for
workers to hire.
Financial market
• Which includes the stock market where
securities of corporation are traded.
8. • DEMAND- Is the willingness of a consumer to buy a
commodity at a given price.
• A demand schedule shows the various quantities
the consumer is willing to buy at various prices
• A demand function shows how the quantity
demanded of a good depends on its determinants,
the most important of which is the price of the
good itself, thus, the equation:
Qd=f(P)
9. This signifies that the quantity demanded for a good is dependent on the price
of that good.
Presented in Table 2.1 is a hypothetical monthly demand schedule for
vinegar (in bottle) for one individual, Martha. The quantity demanded is
determined at each price with the following demand function.
Qd=6-P/2
Table 2.1. Hypothetical Demand Schedule of Martha for Vinegar (in bottle)
At a price of 10 pesos per bottle, Martha is willing to buy one bottle of vinegar for a given month.
Price per bottle
0
2
4
6
8
10
Number of bottles
6
5
4
3
2
1
10. Figure 2.1. Hypothetical Demand Curve of Martha for vinegar (in bottle) for one month
• The downward slope of the curve indicates that as the price
of vinegar increases, the demand for this good decreases.
The negative slope of the demand curve is due to income
and substitution effects.
11. Income effect
• Is felt when a change in the price of a good changes
consumers real income or purchasing power, which is the
capacity to buy with the given income.
Substitution effect
• Is felt when a change in the price of a good changes
demand due to alternate consumption of substitute
goods.
12. Law of Demand
• There is an inverse relationship between the price of a
good and the quantity demanded for that good.
As price increases, the quantity demanded for that product
decreases.
• The low price of the good motivates the consumer to
buy more. When the price increases, the quantity
demanded for the good decreases.
• An increase in income leads consumers to buy more of
most goods at each and every price, vice versa.
13. NON-PRICE DETERMINANTS OF DEMAND
• The demand function will now read:
Q=f(P,T,Y,E,PR,NC), which state that demand for
good is a function of Price(P), Taste(T), Income(I),
Expectation(E), Price of Related Goods(PR), and
Number of Consumer(NC).
• Using the assumption ceteris paribus, which
means all other related variables except those that
are being studied at the moment and are held
constant.
14. • 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.
• Substitute goods are those that are used in place of
each other.
• Complement goods are goods that are used
together.
15. Demand curve
A graphical illustration of demand schedule, with the
price measured on the vertical axis(Y) and the quantity
demanded measured on the horizontal axis (X). The values
are plotted on the graph and are represent as connected
dots to derive the demand curve.
16. Changes in Demand
•Demand Curves can also shift in response to the following
factors:
–Buyers (# of): changes in the number of consumers
–Income: changes in consumers’ income
–Tastes: changes in preference or popularity of product/
service
–Expectations: changes in what consumers expect to happen
in the future
–Related goods: compliments and substitutes
•BITER: factors that shift the demand curve
17. Supply
• Refers to the number of quantity goods that a
seller is willing to offer for sale. It is also a
fundamental economic concept that describe 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.
18. Market Supply
• Supply can refer to the output of one producer or
to the total output of all producers in the market.
Supply Schedule
• It shows the different quantities the seller is willing
to sell at various prices.
Supply Function
• It shows the dependence of supply on the various
determinants that affect it.
19. Assuming that the supply function is given as Qs=100+5P and is used
to determine the quantities supplied at the given prices.
Price of Fish (per kilo) Supply ( in kilos)
20 200
40 300
60 400
80 500
100 600
Table 2.2. Supply Schedule of Pedro for fish in one week
As can be seen in Table 2.2, the relationship between the price of
the fish and the quantity that Pedro is willing to sell is direct. The
higher the price, the higher the quantity supplied.
21. Law of Supply
• As the prices increases, the quantity supplied
of that product also increases. Using the same
assumption of “ceteris paribus”(other things
constant) there is a direct relationship
between the price of a good and the quantity
supplied of that good.
22. NON-PRICE DETERMINANTS OF SUPPLY
If the assumption of ceteris paribus is dropped,
non-price variables are now allowed to influence
supply.
These non-price factors are cost of production,
technology, and availability of raw materials and
resources. These non-price determinants can cause an
upward or downward change in the entire supply of
the product, and this change is referred to as a shift of
the supply curve.
23. • The supply function will now read:
S=f(P,C,T,AR),where the Supply(S) of
good is a function of price of that
good (P), the cost of Production(C),
Technology (T), and the availability of
raw materials and resources (AR).
SHIFTS OF THE SUPPLY CURVE
24. Changes in Supply
• STONER: factors that shift the supply curve
• Supply Curves can also shift in response to the following factors:
–Subsidies and taxes: government subsides encourage production, while
taxes discourage production
–Technology: improvements in production increase ability of firms to
supply
–Other goods: businesses consider the price of goods they could be
producing
–Number of sellers: how many firms are in the market
–Expectations: businesses consider future prices and economic conditions
–Resource costs: cost to purchase factors of production will influence
business decisions.
25. Supply Curve
A graphical illustration of the supply schedule, with the price
measured on the vertical axis(Y) and the quantity supplied measured on
the horizontal axis(X). A supply curve is upward sloping, indicating the
direct relationship between the price of the good and the quantity
supplied of that good.
26. EQUILIBRIUM
• When all things or variables are attained equally
MARKET EQUILIBRIUM
• Is the state of balance when demand is equal to supply.
The equality means that the quantity that seller are
willing to sell is also the quantity that buyers are willing to
buy for a price.
EQUILIBRIUM PRICE
• The price at which demand and supply are equal.
27. Look at this graphical presentation of how market
equilibrium are meet in a certain goods/product or services.
We call this as Law of Supply and Demand curve and Market
Equilibrium.
28. GROUP ACTIVITY
Divide the class into three groups.
Each group will have to present a short play that will portray
how law of demand and supply happened in their everyday
lives.
The short play should have duration of at least 1-3 minutes.
29.
30. ASSIGNMENT!
In a 1 whole sheet of paper. Answer the
following questions below.
1. What is Demand?
2. What is Supply?
3. What is Equilibrium?
4. How is Equilibrium price determined?
5. Can you explain briefly the Law of demand
and supply?
