Republic of the Philippines
CAMARINES NORTE STATE COLLEGE
F. Pimentel Avenue, Brgy. 2, Daet, Camarines Norte – 4600, Philippines
College of Business and Public Administration
NAME OF FACULTY
SUBJECT
SCHEDULE FOR INSTRUCTION
:
:
:
TOPIC
:
Melissa S. Carbonell
ECON 105 – MANAGERIAL ECONOMICS
TTH 8:00 – 9:30 (BSA 1A)
TTH 12:30 – 2:00 (BSA 1B)
Demand
What is this chapter about?
After learning that scarcity is the fundamental concept of economics and that it is based on how economists
think and make rational choices, we are now to discuss and investigate how households and firms decide.
Topic: DEMAND
To start, we will first focus on the consumer’s side of the market. We will examine the different factors
affecting our spending behaviors and be able to relate it with our own experiences. This lesson will help you
discover how the price of a good and the quantity demanded of that good are related.
Specifically, at the end of this lesson, you are expected to be able to:
1.
2.
3.
4.
explain the law of demand;
differentiate between demand schedule, demand curve, and demand function;
explain the different factors affecting behavior of demand; and
draw a change in demand and change in quantity demanded.
Focus Point/Key Concepts
Law of Demand;
Change in Demand; Change in Quantity Demanded;
Demand Schedule; Demand Curve; and, Demand Function
Answer the Self-Assessment Question to evaluate your previous knowledge on the topic of Demand.
Self-Assessment Questions (SAQs)
Analyze the cases of Mel, Tom, and Issa. These three loves to plant and make a garden in their home. Mel
is willing to buy succulent plants, but she does not have the money to pay for it. In contrast, Issa was able to save
her allowance but prefers to plant vegetables than succulent plants. And Tom is willing to buy succulent plants,
and he has income to buy anything he wants. Given your initial understanding of demand, who do you think has
the demand for succulent plants?
Instructions: Write Yes or No in the space provided that corresponds to each of the three cases and answer
the question, who has the demand for succulent plants? An example is given for the case of Mel.
Table 1. Identification of Demand
MEL
TOM
YES
ABILITY TO PAY?
NO
DEMAND?
NO
Image Source: https://www.bioadvanced.com/articles/how-grow-and-care-succulents-indoors
Mel, Issa, and Tom illustrate three different buyer’s behavior. For a need or wants to be considered as
demand, it must be accompanied by their ability to purchase. A buyer who are willing and has the money to buy
what he wants, in this case, Tom, is considered as having the demand for succulent plants.
2ND SEM, 2021-2022
WILLINGNESS TO BUY?
ISSA
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ECON 105 – MANAGERIAL ECONOMICS
DEMAND AND ITS ATTRIBUTES
1.1. Law of Demand
In the activity above, you are introduced to the two major components of demand:
1) a buyer’s willingness to buy; and,
2) ability to pay.
Thus, we know that:
DEMAND
It refers to the various quantities of goods or services that
consumers are willing to purchase in the market at all possible
prices during a specific period.
To further understand demand, we will use the case of Tom, where he exhibited the two most essential
components of demand towards succulent plants. Refer to Table 2 to understand Tom’s buying behavior.
Suppose that the price of a succulent plant is P150, Tom is willing to buy three (3) pieces of succulent plants.
However, when the price increase to P450, Tom reduces his demand and is only willing to buy one (1) piece of
succulent plant.
Table 2. Tom’s Demand for Succulent Plants
Quantity of Succulent plants
Price
demanded/bought
P 150
P 300
P 450
This behavior illustrates the Law of Demand, which states that the quantity
purchased varies inversely with price, holding other factors constant. In other terms,
as shown in Figure 1, where the price of a good or service rises, the quantity demanded
declines and vice versa.
Take note that there is a market when there is a need for a good or service. A
market is a place of sale between buyers and sellers through trading or exchanging
goods or services. We have already addressed two markets, product and factor
markets, in the previous chapter.
In analyzing demand, we will consider the three most commonly used methods, such as demand
schedule, demand curve, and demand function.
Consider the market demand for succulent plants, as shown in Table 3. Market demand involves the sum
of all individual demand for particular products or services. Imagine how the demand for a succulent plant might
vary in a given week depending on the price:
Table 3. Market Demand for Succulent Plants
Quantity of succulent
Point Price per plant
plants demanded
DEMAND
A
P 450
100
SCHEDULE
B
400
200
It is a table that shows how
C
350
300
much of a good or service
D
300
400
consumers are both willing
and able to buy at different
E
250
500
prices.
F
200
600
G
150
700
H
100
800
Table 3 is an example of a demand schedule. It shows the different prices and the corresponding
quantities for the demand for succulent plants in a week. For instance, at a given price of P450, the buyers are
BY: MSCARBONELL
2ND SEM, 2021-2022
1.2. Demand Schedule and Demand Curve
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ECON 105 – MANAGERIAL ECONOMICS
DEMAND AND ITS ATTRIBUTES
willing to purchase only 100 pieces of succulent plants. However, at the cost of P100, they are willing to buy 800
pieces of succulent plants.
Please remember that as the price goes up (down), the quantity of succulent plants being purchased by
the consumer goes down (up). It implies the inverse relationship between the price and the quantity demanded
and is consistent with the Law of Demand discussed above.
When the relationship between the prices of the goods and services is shown in a tabular form, it is called
the demand schedule. If you plot the above data in a graph, with quantity on the horizontal (X) axis and the
price on the vertical (Y) axis, you will derive a demand curve, as shown in Figure 2. A demand curve is a graph
showing the relationship between a good/service price and its quantity demanded.
450
Price per plant
400
350
300
250
200
150
100
A demand curve has a negative
slope; thus, it slopes downward from left to
right. The negatively sloped or downward
sloping indicates the inverse relationship
between price and quantity demanded. That
is when the price of the commodities
decreases (increases), more(less) goods will
be bought by the consumer.
A
B
C
D
E
F
G
H
D0
50
0
Please remember that demand
curves vary for each product. It can be
relatively steep or flat, or they may be
straight or curved. Demand curves usually
embody the law of demand.
100 200 300 400 500 600 700 800 900
Quantity of succulent plants demanded
Figure 2. Demand Curve of Succulent Plants
Let us assume that the price per plant is at price P 250. At this price level, the quantity demanded for a
succulent plant is at 500, and therefore demand will be at point E along the demand curve D0. However, if the
price will increase to P 450, the quantity demanded will decrease to 100, and demand will move upward towards
point A along the same demand curve. This brings us now to the Law of Demand which states that ‘if the price
goes UP, the quantity demanded of a good will go DOWN.’ Conversely, ‘if the price goes DOWN, the quantity
demanded of a good will go UP, ceteris paribus.’ The reason for this is because consumers always tend to
Maximize Satisfaction.
1.3. Factors that May Influence Demand Behavior
where: 𝑄!" = 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑑𝑒𝑚𝑎𝑛𝑑𝑒𝑑 𝑜𝑓 𝑔𝑜𝑜𝑑 𝑋
𝑃# = 𝑝𝑟𝑖𝑐𝑒 𝑜𝑓 𝑔𝑜𝑜𝑑 𝑋
𝐼 = 𝑖𝑛𝑐𝑜𝑚𝑒 𝑜𝑓 𝑐𝑜𝑛𝑠𝑢𝑚𝑒𝑟
𝑃$ = 𝑝𝑟𝑖𝑐𝑒 𝑜𝑓 𝑐𝑜𝑚𝑝𝑙𝑒𝑚𝑒𝑛𝑡𝑎𝑟𝑦 𝑔𝑜𝑜𝑑
𝑃% = 𝑝𝑟𝑖𝑐𝑒 𝑜𝑓 𝑠𝑢𝑏𝑠𝑡𝑖𝑡𝑢𝑡𝑒 𝑔𝑜𝑜𝑑
𝑇 = 𝑡𝑎𝑠𝑡𝑒 𝑎𝑛𝑑 𝑝𝑟𝑒𝑓𝑒𝑟𝑒𝑛𝑐𝑒𝑠
𝑁 = 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑐𝑜𝑛𝑠𝑢𝑚𝑒𝑟𝑠
𝑋 = 𝑠𝑢𝑐𝑐𝑢𝑙𝑒𝑛𝑡 𝑝𝑙𝑎𝑛𝑡
Although other factors may influence consumer demand behavior for a particular good or service, we
will only consider six (6) factors, as presented above. The price of the goods will cause the quantity demanded
to increase or decrease according to the law of demand shown in Figure 2.
BY: MSCARBONELL
2ND SEM, 2021-2022
After learning the difference between the demand schedule and demand curve, we will now discuss the
different factors that may influence demand behavior. Here, we will present it in a demand function form.
Let:
𝑄!" = 𝑓(𝑃# , 𝐼, 𝑃$ , 𝑃% , 𝑇, 𝑁, … )
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ECON 105 – MANAGERIAL ECONOMICS
DEMAND AND ITS ATTRIBUTES
Consumer Income influences demand. Consumers purchase more of most goods when income
increases and consumers buy less of most goods when income decreases. Although an increase in income results
in an increase in the demand for most goods, this does not increase the demand for all goods.
A NORMAL GOOD, is one for which
demand increase as income increases.
An INFERIOR GOOD, is one for which
demand decreases as income increases.
For instance, as incomes increase, the demand for cars (normal good) is rising, and demand for longdistance bus trips (inferior goods) is declining.
The price of related goods also affects consumer's demand for particular goods or services. Related
goods can be a substitute or complementary goods.
The amount a consumer plan to purchase depends in
part on the prices of substitutes for the goods and services. For
instance, riding a bus is a substitute for a plane ride; an ukayIt refers to the good with the same or similar
ukay- clothes are a substitute for new branded clothes, and flat
function to another product.
tops chocolates are a substitute for Hershey’s chocolates. If the
price of riding a bus increases, people will avail less of the bus
rides and avail more of the plane ride since there is a little difference from the prices. On the contrary, if the price
of a bus ride decreases, people will avail more of it than the plane rides because it is more affordable.
SUBSTITUTE GOOD
The quantity that the consumer plans to buy also
depends on the prices of complements with it. For example, pots
and succulent soils are complements of the succulent plants. You
It refers to the good that is purchased/used in
conjunction with another good or service.
cannot grow a succulent plant if you do not use a pot and a soil
suitable for its needs. It means complementary goods are those
goods that are used together with another good to serve well
their purpose or function. A typical example is a coffee and sugar, shoes and socks, and a sim card and cellphone.
If the price of succulent soils decreases, people will buy more of the succulent soils and more succulent plants.
COMPLEMENTARY GOOD
Another factor influencing consumer demand are tastes and preferences. It relates to customer’s likes
or dislikes for particular goods or services. Preferences determine the importance people put on any good and
service. If the consumer attaches greater value to that good or service, he/she may purchase more. Thus, if the
consumer does not give value to a particular good or service, the consumer would have less demand for it. For
example, when the Philippine government declares community quarantine due to the COVID-19 pandemic and
succulent plants was the new trend in the different social media platforms, everyone just wanted to have and
grow one. Consumer preferences towards the succulent plants increase the demand for that plant. However,
those products which consumers do not prefer will suffer a decrease in demand.
Demand also depends upon population size and structure. The bigger the population, the higher the
market for all goods and services; the smaller the population, the less the demand for all goods and services.
POSITIVE RELATIONSHIP (+)
NEGATIVE RELATIONSHIP (-)
The behavior of the two variables has the same
directions—for example, both variables increase or
decrease.
The behavior of the two variables has opposite directions. For
example, one variable increase while the other one decrease or
vice versa.
Based on the discussion above and your experiences as a consumer, determine the possible effects of the
changes of the different factors to the quantity demanded of the product (in this case, the succulent plant). An
example of how you will answer it is provided in the first factor shown in Table 4.
The first factor is the price of the succulent plant; you will notice that as the price for succulent plant
increases, the quantity demanded the succulent plant decreases. On the other hand, when the price declines, the
quantity demanded succulent plant increases. Thus, the relationship is negative because the two variables have
opposite directions. Again, this follows the behavior of the law of demand.
BY: MSCARBONELL
2ND SEM, 2021-2022
In the next part, I want you to examine the possible effects of each factor on the quantity demanded of
the succulent plant by identifying whether they have positive or negative relationships.
4
ECON 105 – MANAGERIAL ECONOMICS
DEMAND AND ITS ATTRIBUTES
Table 4. Factors Affecting Demand Behavior
Factor
(
) Price of Succulent Plant
(
) Income of the consumer
(
) Price of complementary good
(
) Price of the substitute good
(
)Taste and preferences
(
) Number of consumers
Effects on QD
(Succulent Plant)
Relationship
(
Negative (-)
)
From these factors, demand can also be analyzed mathematically through a demand function. As discussed
above, we can show our mathematical function for demand as:
𝑄!" = 𝑓(𝑃# , 𝐼, 𝑃$ , 𝑃% , 𝑇, 𝑁, … )
Thus, we can come up with the demand function as:
Where:
𝑄!" = 𝑎 − 𝑏𝑃
QD = quantity demanded at a particular price
a = intercept of the demand curve
b = slope of the demand curve
P = price of the good at a particular time period
We can now illustrate our demand function using a hypothetical example. Let us assume that the current
price per plant is 150 pesos. The intercept of the demand curve is 100, while the slope is 0.20. If we want to
determine how much of succulent plant will be demanded by consumer Tom, we can simply substitute the given
value to our equation, thus:
𝑄!" = 𝑎 − 𝑏𝑃
𝑄!" = 100 − 0.20(150)
= 100 − 30
𝑸𝑫
𝑿 = 𝟕𝟎 pieces of succulent plants
But, what if the price per plant goes down to 100 pesos? What will now be the new quantity demanded by
Consumer Tom? If you say 80 pieces of succulent plants, then you are correct. Once again, you will arrive at the
new quantity demanded by simply substituting our values for our demand equation. What happened to the
quantity demanded? There is a ten (10) piece increase in succulent plants due to the decrease in its price. Again,
this is because of the inverse relationship between price and quantity demanded.
1.4. Change in Quantity Demanded vs. Change in Demand
In economic terms, demand is different from the quantity demanded.
QUANTITY DEMANDED – refers only to a certain point on the demand curve, or quantity on the demand
schedule.
DEMAND – refers to the relationship between a range of prices and the quantities demanded at those prices, as
illustrated in the demand curve.
CHANGE IN DEMAND – refers to the shifting of the demand curve. Shifting to the right means that demand
increases. In contrast, shifting to the left means the demand decreases. This happens when a
consumer buys more (less) of the good because one or more of the factors affecting its demand
(other than the price of the good, i.e., 𝐼, 𝑃$ , 𝑃% , 𝑇, 𝑁) changes.
BY: MSCARBONELL
2ND SEM, 2021-2022
CHANGE IN QUANTITY DEMANDED – refers to the movement from one point to another point along the
demand curve. That is because of the product’s price increases. The consumer buys more (less) of
the good because of the price of that good decreases (increases).
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ECON 105 – MANAGERIAL ECONOMICS
DEMAND AND ITS ATTRIBUTES
Graphically,
Figure 3 illustrates the concept of
change in quantity demanded.
Change in quantity demanded occurs
when price of the product changes,
thus, resulting to a change in
quantity demanded.
This is illustrated in the graph
where P0 increase to P1 resulting to a
decrease in quantity from Q0 to Q1
and a movement along the demand
curve from point a to point b.
Figure 3. Change in Quantity Demanded
Figure 4 shows the two different
movements of the demand curve. There is a
change in demand if the entire curve shifts
to the right (left) resulting to an increase
(decrease) in demand due to other factors
than the price of the good sold.
In the figure, we can observe that the
entire demand curve shifts upward or to the
right (indicated by the arrow) from D0 to D1.
We can observe that at the same price P0
more goods will be demanded by
consumers (from Q0 to Q1).
In contrast, demand decreases or falls if
the entire demand curve shifts downward
or to the left (indicated by the arrow) from
D0 to D2. If price remains at the same level,
demand for the product or service will
decrease (from Q0 to Q2).
Figure 4. Change in Demand
•
To summarize, the law of demand explains the buyer’s behavior. Generally, when the price of a good is low,
people buy more of the good than when its price is high. When this price-quantity relationship is graphed,
the result is a demand curve.
•
A change in price results in movement from one point to another along the demand curve, which is called a
change in quantity demanded. As other factors in the market change, the demand curve shifts to the left or
the right. That is what we call a change in demand. These factors are the following: income, price of related
goods; taste and preferences; and population.
•
However, demand is only one of the two forces that make up a market. We will discuss Supply in the next
lesson.
BY: MSCARBONELL
2ND SEM, 2021-2022
Summary
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ECON 105 – MANAGERIAL ECONOMICS
DEMAND AND ITS ATTRIBUTES
References:
Greenlaw, S.A., and Shapio, D. (2018). Principles of Microeconomics 2nd edition licensed under a Creative
Commons Attribution 4.0 International License (CC BY 4.0). Download for free
at https://openstax.org/details/books/principles-microeconomics-2e
Curtis, D., and Irvine, I. (2017-B). Principles of Microeconomics. Licensed under a Creative Commons License (CC
BY-NC-SA).
Download
for
free
at
https://laecon1.lyryx.com/textbooks/CURTIS_PRIN_MIC_1/marketing/CI-Principles-ofMicroeconomics-2017B.pdf
Catelo, M. A. O. (n.d.). Intermediate Microeconomic Theory: Reference Workbook. College of Economics and
Management, UPLB College, Laguna.
McTaggart, D., Findlay, C., & Parkin, M. (2013). Economics. 7th edition. Pearson Australia.
Sexton, R. L. (2012). Exploration of Microeconomics. 5th edition. Cengage Learning Asia Pte Ltd.
Bato, M. J., et al. (2015). Microeconomics Theory Simplified. National Bookstore: Mandaluyong City.
Prepared by:
2ND SEM, 2021-2022
(SGD) MELISSA S. CARBONELL
Assistant Professor III
BY: MSCARBONELL
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