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Understanding Demand: Unit 2: Microeconomics

This document discusses microeconomic concepts related to demand. It defines demand as the quantity of a good or service consumers are willing and able to purchase at various price levels. A demand schedule and demand curve are used to graphically represent the inverse relationship between price and quantity demanded. The law of demand states that, all else equal, quantity demanded decreases as price increases. Determinants of demand include income, population, preferences, prices of related goods, and expectations. Elasticity of demand measures responsiveness of quantity demanded to price changes and can be elastic, inelastic, or unitary.

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Trexie Infante
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81 views26 pages

Understanding Demand: Unit 2: Microeconomics

This document discusses microeconomic concepts related to demand. It defines demand as the quantity of a good or service consumers are willing and able to purchase at various price levels. A demand schedule and demand curve are used to graphically represent the inverse relationship between price and quantity demanded. The law of demand states that, all else equal, quantity demanded decreases as price increases. Determinants of demand include income, population, preferences, prices of related goods, and expectations. Elasticity of demand measures responsiveness of quantity demanded to price changes and can be elastic, inelastic, or unitary.

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Trexie Infante
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© © All Rights Reserved
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UNIT 2: MICROECONOMICS

Understanding Demand

TREXIE JOY V. INFANTE


DEMAND
 The concept of demand is focused on
consumer behavior in the market.
 Demand refers to the number of goods and
services that consumers are willing and
able to buy at alternative prices at a given
period of time.
DEMAND FUNCTION

 It is a mathematical expression of the relationship of two


variables.
 The Quantity Demanded (Qd) as the dependent variable and
Price (P) as the independent variable

 Qd changes as price changes


For example
a. Qd=200-4(50)
Qd=200-200
Qd=0

b. Qd=200-4(45)
Qd=200=180
Qd=20
DEMAND SCHEDULE
 A demand schedule is a table showing the units of the
product, which the consumer is willing and able to buy at
alternative prices.

POINT QD PRICE
A 0 50
B 20 45
C 40 40
D 80 30
E 100 25
F 140 15
G 160 10
CETERIS PARIBUS
 Latin words which mean “all other things remain
constant”
DEMAND CURVE
 It is a graphical representation of the inverse
relationship of price and quantity demanded which
the consumer is wiling to buy
LAW OF DEMAND
 It explains how people react every time price changes in
terms of the quantities of the product that they purchase.

Price decreases

Qd increases Price decreases


MARKET DEMAND
 It is a combination of all the demands of
consumers in the market.
DETERMINANTS OF DEMAND
1.POPULATION
 As the population increases, the number of consumers also
increases, hence the demand for products and services may
also increase.
2.EXPECTATION
 When a consumer hears about political unrest or trouble
happening in some parts of the country or even around the
world, or if calamities occur, he/she assumes that the
economy will be affected.
3. INCOME
 In determining demand, the income of an individual plays a
significant role.
 If a consumer receives a high income she/he is capable of
buying more products even if the price is the same.
4. PREFERENCE
 Change in taste and preference for a particular brand affects
the demand for products.
 Advertisements and endorsers somehow influence the
consumers’ preference
5. OCCASION

 It is important to celebrate every special event and occasion


among Filipinos
 Whenever there is a celebration, demand for products that
are used for the occasion increases.
6. PRICE OF RELATED PRODUCTS
 When the price of one good or service increases
the demand for it will decrease.
Graphical Representation of the change
in Demand
Elasticity of Demand
 It is easy to say that the demand of an individual changes as
the price increases or decreases.
 The response of quantity demanded or Qd in every
percentage of price change will be known by computing the
price elasticity of demand
1. Inelastic
 The value of less than one represents an inelastic demand.
 Consumer’s response is less than the price change.

Qd
Perfectly Inelastic
 Consumers will consume products and services at certain
quantity even if the price is continuously increasing.

Qd
2. Elastic
 The response of quantity demanded in every percent change
in price is considered elastic when the value is more than
one

 What does it mean?


 For every one percent change in price, quantity demanded
will decrease by more than one percent.

Qd
Perfectly Elastic
 Consumers are not ready to accept any price increase.
 The graph shows that the consumers are willing to buy more
products at a lower price
 Any increase in the market is not acceptable to the
consumers.
P

20

Qd
3. Unitary
 The response of consumer to price change is unitary when
the value of quantity demanded and the change in price is
equal to one percent.

Qd
Computation of Elasticity of Demand
 In computing the coefficient of price elasticity, the absolute value
is always taken into consideration.

 The formula in computing the price elasticity (Ep) is:

Ep=%ΔQ The % ΔQ is presented by Q2-Q1


%ΔQ Q
Where: ΔQ=Q2-Q2 % Δ is P2-P1
ΔP=P2-P1 P
where: Q1-Q2
Q is 2
P1+P2
P is 2
  The common formula for the coefficient of price elasticity is:

Let us apply the formula of price elasticity by


using the following hypothetical data.

P1=₱35/kiloQ1=20 kilos
P2=₱42/kiloQ2=18kilos
   18-20 -2
20+18 38 -2
2 = 2 = 19
Ep= 42-35 7 7
35+42 77 38.5
2 2

 The next step is to multiply the numerator with the


denominator in the process, get the reciprocal of the
numerator before multiplying
.Ep=0.58

 The answer is -0.58 which is inelastic

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