DEMAND represents the goods and services
that people buy at a given point of time.
DEMAND refers to the quantity of goods or
services that consumers are both willing and
able to produce.
The law of demand indicates the inverse
relationship between price of a good and
quantity demanded.
• PRICE is the amount of money a consumer pays
for a good while QUANTITY DEMANDED is the
amount of good that a consumer is willing and
able to buy at a specific price.
• It states that as the price goes up, the quantity
demanded goes down, and as price goes down,
the quantity demanded goes up, ceteris paribus.
In other words, more people will buy more of a
good if the price is lower while fewer people will
buy less of a good if the price is higher.
• For example, if the price of airline tickets drop,
people are encouraged to travel more. However,
if the price of movie tickets rises, fewer people
want to watch a movie.
DEMAND SCHEDULE
• A demand schedule represents the
relationship of price to quantity demanded in the
form of a table. It lists the prices and the
corresponding quantities demanded of a
particular good or service.
• Demand schedule can be an individual
schedule or a market demand schedule.
Ø Individual demand is the schedule of a person
or household that shows the quantities
demanded at each price.
Ø Market demand schedule is the sum of all
individual demands. It is derived by adding up
the quantities that every person or household is
willing and able to purchase at each price for a
particular good.
DEMAND CURVE
• The demand curve is illustrated by plotting the
listed prices and quantities from the given
schedule. The price is placed on the vertical axis,
and the quantity demanded is measured on the
horizontal axis
DEMAND EQUATION
• mathematical representation of the
relationship between price and quantity
demanded.
Non-Price Determinants of Demand
1.INCOME.
• A normal good is a product in which demand
varies directly with income. A rise in income
causes an increase in demand, and a fall in
income leads to a decrease in demand. Most of
the products are normal goods, including
restaurant meals, branded t-shirts, and
electronic devices. • An inferior good is a product
in which demand varies inversely with income.
The demand for inferior goods rises as income
decreases, and demand falls when income
increases. Common examples of inferior goods
include canteen meals, means of transportation,
generic drugs, and surplus goods. buyers, tastes
or preferences, and expectations.
2.Tastes and preferences.
• The demand for any good depends on tastes
and preferences which define what people like
and wish to choose. • If a good becomes more
popular among consumers, demand increases,
and if it becomes less popular, demand
decreases. • For example, a trending movie best
illustrates a higher demand for movie tickets.
However, when the trend dies out, fewer
moviegoers will demand for tickets.
3. Price of related goods.
The demand for a good is also affected by the
price and availability of related products. The
two categories of related goods are called
substitutes and complements. • A substitute
good is a product that can be used in
replacement of another product. Laptop and
tablet, lemonade and iced tea, and Spotify and
Apple Music are pairs of substitute goods. When
two goods are substitutes, an increase in the
price of an alternative good will increase the
demand for the other good. Conversely, a
decrease in the price of one good will decrease
the demand for the other. For instance, when the
price of a laptop increases, consumers will
purchase less of it, and increase their demand for
a tablet. When the subscription price of Spotify
falls, the demand for say, Apple Music rises.
A complementary good is a product that is
always used together with another product.
Toothpaste Personal computer and software,
toothpaste and toothbrush, and Netflix and
Globe mobile data are some pairs of
complementary goods. When two goods are
complements, an increase in the price of good
will decrease the demand for the other good.
Conversely, a decrease in the price of one good
will increase the demand for the other. For
example, when the price of a PC rises, the
demand for software applications will increase.
When the subscription price of Netflix falls,
consumers will increase their demand for Globe
mobile internet.
4.Number of buyers. Population and market size
determines the number of consumers buying a
good or service. The population clearly affects
the demand for any good. A higher population or
greater market size results in higher demand,
while a lower population or market size takes the
reverse situation. The Philippines’ 108 million
people will buy fewer bananas and smartphones
than China’s 1.4 billion individuals. An increase in
the market size for Korean barbecue in the
Philippines leads to higher demand among
Filipinos for samgyupsal.
5. Expectations Ø consumers' expectations can
influence the demand of many items, which can
affect the demand for a good at present. These
expectations comprise price and buyer’s income.
Consumers who expect the price of a good to
increase in the future may prompt them to buy
today, thus increasing the current demand for
the good. Conversely, those who expect the price
of a good to fall in the future may cause them to
buy the good later, thus decreasing the current
demand for the good.
SUPPLY refers to the quantity of goods or
services that sellers are both willing and able to
sell at certain conditions.
INDIVIDUAL SUPPLY shows the quantities
supplied at each price by one firm.
MARKET SUPPLY is the sum of the individual
supply schedules of all firms in the industry.
THE LAW OF SUPPLY is the microeconomic law
that states that, all other factors being equal, as
the price of a good or service increases, the
quantity of goods or services that suppliers offer
will increase, and vice versa. It explains how firms
react to changes in price.
For example, if the price of mangoes in the
market increases, farmers are encouraged to
produce more.
A supply schedule represents the relationship of
price to quantity supplied in a table form. In
other words, it lists the prices and the
corresponding quantities supplied for a
particular good or service.
The law of supply can be graphed using the
supply curve, which serves as the graphical
representation of the supply schedule.
Mathematical representation of the relationship
between price and quantity supplied.
A change in supply occurs whenever there is a
change in non-price determinants of supply—
input costs, technology, number of producers,
expectations,
government
actions,
and
unpredictable events, ceteris paribus. For
instance, when the costs of production rise, this
causes the quantity supplied to change. The
change in supply is represented by the shift of
the supply curve. A rightward shift means
increase in supply while a leftward shift indicates
decrease in supply. t. The shift of the demand
curve from S1 to S2 or S2 to S1 is shown in Figure
6.3.
Non-Price Determinants of Supply
1. Input Costs. Firms incur costs when they
produce goods and services including the prices
of raw materials, rents, wages of workers,
interests and others inputs of production. Input
costs are a key factor that determines supply. If
the input costs become more expensive, the
supply decreases. Consider for example, a rise in
the wages among workers will increase the
production costs of a firm and will lower its
supply. A substantial fall in the price of gasoline
will likely decrease the costs of production,
therefore, increase supply.
2. Technology. Advances in technology may
change the level of supply. Technology improves
the productivity of workers and increases the
efficiency of the production process. An
improvement in technology leads to an increase
in supply. For example, the application of
technology like the use of industrial robots
causes an increase in supply of many consumer
electronics products such as smartphones. Also,
modern technology in agriculture helps farmers
to plant and produce more crops like corn, rice
and the like.
3. Number of producers. Market supply also
depends on the number of producers in the
market or industry. An increase in the number of
producers may lead to an increase in supply of
goods and services. For example, if a new
restaurant opens and offers lunch meals in a city,
supply of meals will likely increase.
4. Price expectation. Like buyers, firms expect
the price of their goods to increase or decrease
in the future, which may affect their current
supply. If price is expected to rise in the future,
current supply decreases, and if it’s expected to
fall, supply increases. Take for instance, a
manufacturer anticipates the price of shoes to go
higher in the future so it cuts the quantity it will
sell, thereby decreasing supply. On the other
hand, a farmer expects the price of rice to
decrease next year, so he decides to produce and
sell more rice this year, thus, increasing supply.
5. Government actions. Government actions
through the implementation of policies may
cause supply to change. These government
actions involve granting subsidies or raising
various taxes. A subsidy is an incentive provided
to firms by the government that can improve the
supply of a certain good. Subsidies tend to
increase market supply. Tax is an enforced
contribution imposed by the government to
firms. Taxes tend to cut supply as it raises the
costs of production. For example, the
implementation of TRAIN law in the Philippines
increases the excise tax on sweetened
beverages, therefore, decreases the supply of
these products.
6. Unpredictable events. Unpredictable events
happened in a firm, caused by nature, the
economy, and other unforeseen circumstances
may change the level of supply. These include
labor and industrial disputes, machine failure,
bad weather due to typhoons and floods,
agricultural pests affecting crops, shortage of
imported commodities due to global recession,
among others. The COVID-19 pandemic is one
straightforward example as it disrupts the global
supply chain of commodities where exports and
imports have declined to all regions across the
world affecting the supply of many
commodities.