GRADE LEVEL: SHS 12 WEEK: 2

SUBJECT: APPLIED ECONOMICS LESSON: 1

OBJECTIVES:
1. Identify the factors that affect demand and supply.
2. Value the concept of demand and supply.
3. Discuss the factors that affect demand and supply.

LESSON PROPER: indicating the negative relationship between the two

THE MARKET
A market is an interaction between buyers
and sellers of trading or exchange.
1. Goods Market – it is where we buy Figure 2.1
consumer goods. Price 20
2. Labor Market – it is where workers offer 10
services and look for jobs and where
0
employers look for workers to hire. 1 2 3 4 5
3. Financial Market- includes the stock Figure 2.1
market where securities of corporations
are traded. Hypothetical Quantity Demanded (In Bottles)
DEMAND Demand curve of
The willingness of a consumer to buy a Martha for Vinegar
for One Month.
commodity at a given price. A demand schedule
shows the various quantities the consumer is willing
to buy at various prices. The downward slope of curve indicates that as the
price of vinegar increases, the demand for this good
A demand function shows how the quantity
decreases. The negative slope of the demand curve is
demanded of a good depends on its determinants,
due to income and substitution.
the most important of which is the price of the good
itself, thus, the equation: Qd = f (P) Income effect is felt when a change in the price of a
good changes consumer’s real income or purchasing
power, which is the capacity to buy with a given
Table 2.1. Hypothetical Demand Schedule of Martha for
Vinegar (in bottles.)
income. Substitution effect is felt when a change in
Price per bottle Number of bottles the price of a good changes demand due to
alternative consumption of substitute goods.
0 6

2 5
THE LAW OF DEMAND
4 4
After observing the behavior of price and
6 3 quantity demanded in the above schedule, we can
8 2
now state the Law of Demand.
Ceteris paribus – all other related variables
10 1
except those that are being studied at the moment
and are held constant, there is an inverse
The quantity demanded is determined at each price relationship between the price of a good and the
with the following demand function: quantity demanded for that good. As price increases,
Qd = 6 – P/2 the quantity demanded for that product decreases.
The demand curve is a graphical illustration When the price increases, the quantity demanded for
of the demand schedule, with the price measured on the good decreases.
the vertical axis (Y) and the quantity demanded
measured on the horizontal axis (X). The values are NON-PRICE DETERMINANTS OF DEMAND
plotted on the graph and are presented as connected The demand function will now read:
dots to derive D= f (P, T, Y, E, PR, NC)
 If consumer income(Y) decreases, the Using the same assumption of “ceteris
capacity to buy decrease and the demand paribus”, there is a direct relationship between the
will also decrease. Vice versa. price of a good and the quantity supplied of that
Improved taste(T) for a product will cause a good. As price increases, the quantity supplied of
consumer to buy more of that good. that product also increases.
Consumer’s expectation(E) of future NON-PRICE DETERMINANTS OF SUPPLY
price nd income.  Supply is influenced by factors other than
Prices of related goods (PR) as price.
substitutes or complements also determine The supply function will now read: S= f (P, C,
demand. T, AR) the cost of production (C) refers to the
the number of consumers (NC) is also an expenses
important determinant that will affect incurred tp produce good.
market demand for a good. Technology (T) – the use of improved
technology in the production of a good will
SUPPLY result in the increased supply of that good.
Availability of raw materials and resources
Supply refers to the quantity of goods that a (AR) – more resources can be used to
seller is willing not offer for sale. The supply schedule produce a bigger output of the good, then
shows the different quantities the seller is willing to the supple increases.
sell at various prices. The supply function shows the
dependence of supply on the various determinants ACTIVITY 1:
that affect it. Using the following demand function, solve for the
Assuming that the supply function is given as demand schedule of consumer Robert given the
Qs = 100 + 5p and is used to determine the quantities following prices for bottled water.
supplied at the given prices. Qd = 60 – P/2
Prices Qd
Table 2.2. Supply schedule of Pedro for fish in one week 4
8
Price of fish (per kilo) Supply (in kilos) 12
20 200 16
40 300 18
60 400 20
Figure80
2.3. Supply curve of fish of pedro500
for 1 week. 22
100 600 24
Price of fish (per kilo)

120
100
26
80
60
40
20
0
1 2 3 4 5

Quantity Supplied (in hundred kilos)

ASSESSMENT:
Table 2.2 shows the relationship between the price On the other hand, for Rudolph, a seller of bottled
of fish and the quantity that Pedro is willing sell is water in the market, the supply function is given as:
direct. Qs = 5 + 5P
The higher the price, the higher the quantity Prices Qs
supplied. 4
When plotted into a graph, we obtain the supply 8
curve. 12
16
We derive a supply curve that is upward sloping, 18
indicating the direct relationship between the price 20
of the good and the quantity supplied of that good. 22
24
THE LAW OF SUPPLY 26
ASSIGNMENT:
Instructions: Research the following topic.
1. DEMAND AND SUPPLY IN RELATION TO THE
PRICES OF BASIC COMMODITIES

REFERENCES:
• Applied Economics Book
MATERIALS: Paper, Notebook and Ballpen