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Module 2 Application of Demand and Supply New

This document provides an overview of demand and supply concepts. It defines key terms like demand, quantity demanded, market demand, determinants of demand, demand curve, supply, quantity supplied, market supply, determinants of supply, and supply curve. It also explains the laws of demand and supply - that quantity demanded is negatively related to price according to the law of demand, and quantity supplied is positively related to price according to the law of supply. Factors that can cause a shift in the demand or supply curve are also outlined.

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44 views31 pages

Module 2 Application of Demand and Supply New

This document provides an overview of demand and supply concepts. It defines key terms like demand, quantity demanded, market demand, determinants of demand, demand curve, supply, quantity supplied, market supply, determinants of supply, and supply curve. It also explains the laws of demand and supply - that quantity demanded is negatively related to price according to the law of demand, and quantity supplied is positively related to price according to the law of supply. Factors that can cause a shift in the demand or supply curve are also outlined.

Uploaded by

ha? hakdog
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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 LESSON 2

APPLICATION OF
DEMAND AND SUPPLY
The global
pandemic changed
the pattern of
global supply
chains.
What caused these
changes in prices
and supply? 
In this activity, put yourselves in the shoes of both buyer and seller.
Choose which items to buy or sell.

First round: You are the buyers.


In this activity, put yourselves in the shoes of both buyer and seller.
Choose which items to buy or sell.

First round: You are the sellers.


MARKET
Every market has its own special characteristics, but all markets ultimately
have two things in common:

 Demand by all people for products


or the resources that make them.

 A willingness by producers to supply


those products or resources.
LAW OF DEMAND
The law of demand explains the effect of prices on rationing. It notes that the quantity of the
commodity that customers are willing and able to buy rises when all other factors are constant. An
inverse interaction between quantity and price demanded can be seen by the law of demand.

Keeping factors constant or at


ceteris paribus, buyers will purchase
more at lower prices and less at
higher prices.
LAW OF DEMAND

 DEMAND QUANTITY DEMANDED MARKET DEMAND

Demand is a quantity and The number of a good The market demand is


price relationship. that individuals are simply the sum of all
Demand is defined as the
able and willing to buy individual demand.
various quantities of a
resource, service or good at a particular price
that consumers or during a certain
customers are able and period.
willing to buy even in
possible various prices at
any time given.
DEMANDED SCHEDULE

• Demand schedule is
a table showing the
quantities of a
product that would
be purchased at
various prices at a
given time and
place.
DEMAND CURVE

• A demand curve is a
graph of the demand
schedule. The curve in
Figure 1 shows the
relationship between
the price of T-Shirts and
the quantity buyers are
willing to purchase. It
slopes downward, from
left to right.
CHANGES IN DEMAND
CHANGES IN QUANTITY DEMAND

• Is the movement from one point to • The demand curve describes the
another point on the same demand relationship between purchasing
curve caused by a change in the rates and quantities over a given
price. period of time, but the price is not
the only factor that shifts, influencing
the desire of the buyer to purchase.
Demand shifts as this happens
increases or decreases.
DETERMINANTS OF DEMAND

1. Consumers’ Tastes and


Preferences

• Tastes and preferences


change in favor of a product
will suggest that at each
price, more would be
ordered than before. On the
other hand, a shift in tastes
and preferences away from a
commodity will mean that
less would be needed at
each price than before.
DETERMINANTS OF DEMAND

2. Consumer’s Income

• Individual’s income may


change depending upon
the economic situation. A
change in income
(increases or decreases),
individual’s demand for a
particular good may rise or
fall.
DETERMINANTS OF DEMAND

3. Population

• Growth in the population


influences the amount
requested in more or less
the same way as real
income rises. A large
population will increase
demand, and demand for a
specific product will decline
with smaller populations.
DETERMINANTS OF DEMAND
A. Substitutes goods 4.
• when the price of a particular
item increases, the consumer will
shift in the demand for a
substitute.

B. Price of Complementary Goods


• If the price of fuel increases, what will
happen to the demand for cars?
 Things often bought together, such as
cars and gasoline, are complementary.
According to the rule of demand, the
demand for imported fuel will
decrease if the price of a car falls.
DETERMINANTS OF DEMAND

5. Expectation of Future Prices

• If the price rises or decreases in


the future, what will happen?
 The demand for goods and
services will be influenced by
future expectations.
 If a customer assumes that the
price of necessities will rise in
times of calamity, the demand
for necessities will presumably
rise.
Determinants of the Elasticity of Demand
1. Luxuries vs. Necessities

• The demand for “necessities” tends to be inelastic; the demand for “luxuries”
tends to be elastic.

2. Proportion of Income

• Other things being equal, the greater the share of a product in one’s budget, the
greater the elasticity of demand for it.

3. Substitutability

• The more substitutes there are for a commodity, the greater elasticity demand.

4. Time

• The longer the interval of time considered, the more elastic the demand for the
commodity.
Price Elasticity of Demand

Price elasticity of demand or elasticity of


demand is defined as the ratio of the
percentage change in quantity demanded to
the percentage change in price that brings
about the change in quantity demanded.

Elasticity of Demand = Percentage Change


in Quantity Demanded/Percentage Change
in Price
Price Elasticity of Demand

Example:
You need to buy facemask for your family. Before the pandemic the price
of 50pcs facemask is P100. But suddenly due to the demand for it the price
increased to P120 for 40pcs facemask. Let’s compute the Price of Elasticity
Demand.
Price Elasticity of Demand
PRICE
Demand is Elastic if say, a 10 percent rise in price
12
leads to a reduction in quantity demanded of
more than 10 percent. Demand is Inelastic if
such a rise in price reduces quantity demanded 10

by less than 10 percent.


8

REMEMBER: 6

• When the demand for an item is Inelastic, a


change in price will have a relatively small effect 4
on the quantity demanded.
• When the demand for an item is elastic, a 2
small change in price will have a relatively large
effect on the quantity demanded. 0
0 2 4 6 8 10 12
LAW OF SUPPLY

The law of supply states that sellers will offer more of an item at a high price and less at low
price

Keeping factors constant or at


ceteris paribus, buyers will purchase
more at lower prices and less at
higher prices.
LAW OF SUPPLY

SUPPLY QUANTITY SUPPLIED MARKET SUPPLY

Supply is characterized The number of goods The market supply is


as the amount of that individuals are simply the sum of all
goods that sellers are willing and able to sell individual supply.
able and willing to sell at a particular price
on the market for a during a particular
certain particular period of time.
period of time at
various prices.
SUPPLY SCHEDULE

• Supply schedule
shows the quantity
of items sellers
would offer for sale
at different prices.
SUPPLY CURVE

• A Supply Curve shows


the interaction
between the price of
the goods and the
number of units’ seller
will offer for sale.
CHANGES IN SUPPLY
CHANGES IN QUANTITY SUPPLIED

• A change quantity supplied refers to • A change in Supply refers to a shift in


a movement along a supply curve. the supply curve. Like demand,
The only factor that can directly Supply in a market typically responds
cause a change in the quantity to different factors other than price.
supplied of a good is a change in the
price.
Determinants of Supply
1. Technological Progress

• Inventions and innovations tend to make it possible to produce more or better products
with the same resources.

2. Number of Sellers

• Increase in the number of sellers will increase the supply products in the market.

3. Cost of Production

• Changes in input prices also change the supply of goods. Increase in minimum wage of
workers will increase the price of input and some producers cannot afford to pay the
increase in wage, supply will decrease due to decrease in the number of workers.

4. Expectation of Future Price

• If producers expect prices to increase in the future, they may increase their production
now to gain profit when price of that particular goods increase. If prices are expected to
decrease in the future, producers may reduce production.

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