12 ABM Applied Economics: Market Demand & Supply

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Questions and Answers

What does the law of supply state about the relationship between price and quantity supplied?

The law of supply states that as the price of a product increases, the quantity supplied also increases.

How can the data provided about bread prices and quantities supplied be interpreted in relation to the law of supply?

The data shows that as the price of bread increases from 1.00 to 8.00 pesos, the quantity supplied rises from 100 to 800 units.

Identify two factors that can affect the supply of a product.

Production capacity and production costs are two factors that can affect the supply of a product.

What is meant by the equilibrium price in a market?

The equilibrium price is the price at which the quantity supplied equals the quantity demanded. Signup and view all the answers

Describe the slope of the supply curve and its significance.

The supply curve slopes upward, indicating that higher prices lead to higher quantities supplied. Signup and view all the answers

What does the law of demand state about the relationship between price and quantity demanded?

The law of demand states that a higher price typically leads to a lower quantity demanded. Signup and view all the answers

How do supply and demand curves interact to create an equilibrium point?

Supply and demand curves intersect at the equilibrium point, where the market price balances quantity supplied and quantity demanded. Signup and view all the answers

Name an ancillary factor that can affect supply and briefly explain its impact.

Weather is an ancillary factor that can affect supply; for instance, adverse weather can reduce production capacity. Signup and view all the answers

What is the primary implication of the law of demand?

The primary implication is that as the price of a good increases, the quantity demanded decreases. Signup and view all the answers

How does marginal utility relate to the law of demand?

Marginal utility indicates that consumers derive less satisfaction from each additional unit purchased, leading to decreased demand at higher prices. Signup and view all the answers

Identify two factors that can affect demand besides price.

Income of buyers and consumer preferences are two factors that can affect demand. Signup and view all the answers

Explain the concept of effective demand in economics.

Effective demand exists when consumers have the willingness and ability to pay for a product at a given price. Signup and view all the answers

What happens to the quantity demanded if the price of a product decreases?

If the price of a product decreases, the quantity demanded typically increases. Signup and view all the answers

Describe the shape of the demand curve and its significance.

The demand curve is downward sloping, signifying that higher prices lead to lower quantities demanded. Signup and view all the answers

How does an increase in the number of potential buyers affect demand?

An increase in the number of potential buyers generally leads to an increase in demand for the product. Signup and view all the answers

What is the relationship between supply, demand, and market equilibrium?

Market equilibrium occurs when the quantity supplied equals the quantity demanded, balancing both forces. Signup and view all the answers

What does a supply curve illustrate?

A supply curve illustrates the relationship between quantity supplied and price on a graph. Signup and view all the answers

How does the law of supply relate to price changes?

The law of supply states that a higher price typically leads to a higher quantity supplied. Signup and view all the answers

What occurs at the equilibrium price?

At the equilibrium price, the quantity demanded is equal to the quantity supplied. Signup and view all the answers

What happens if the price is set below the equilibrium level?

If the price is below equilibrium, excess demand or a shortage will exist. Signup and view all the answers

What is the effect of a price being above the equilibrium level?

If the price is above equilibrium, the quantity supplied will exceed the quantity demanded. Signup and view all the answers

How can an increase in electricity bills impact consumer behavior?

An increase in electricity bills may lead consumers to increase their demand for kerosene heaters and coal. Signup and view all the answers

What does the market demand curve for apples show?

It shows the quantity of apples that consumers are willing to buy at different prices. Signup and view all the answers

What could result from a car manufacturer producing faster than people want to buy?

This could create an excess supply of cars, leading to a potential decrease in prices. Signup and view all the answers

Study Notes

Applied Economics Notes

Course: 12 ABM Applied Economics
Teacher: Alden A. Badillos

Market Demand, Market Supply, and Market Equilibrium

Objectives:
- Determine the concepts of market demand, supply, and equilibrium.
- State the laws of demand and supply.
- Construct and analyze demand, supply, and their curves.

Graph Analysis

Question 1: Locate the equilibrium point on the demand and supply graph.
Question 2: If the price is above the equilibrium level, what could you predict with the demand and supply?
- a. Oversupply/surplus
- b. Shortage/scarcity
- c. Demand and supply are equal
Question 3: If the price is below the equilibrium level, what could you predict with the demand and supply?
- a. Oversupply/surplus
- b. Shortage/scarcity
- c. The quantity supplied is less than the quantity demanded

Fill in the Blanks

Question 1: The law of demand applies during online sales of shoes; that is when consumers rush to buy products at 50% discounts.
Question 2: The law of supply applies when producers supply more pineapple juices at a higher price; selling at higher quantity at a higher price increases revenue.

Looking Back to Our Lesson

Questions:
- 1. The economic problem is focused on the legalities of production.
- 1. The nature of goods to produce.
- 1. The allocation of products among members of society.
- 1. The method of production of products (What to produce, What to produce, What provision to implement, What method or strategy is effective and efficient)

Brief Introduction

Economics: Helps solve problems of excess supply and excess demand, leading to balanced supply and demand.
Oversupply: Means wastage of income.
Entrepreneurs: Inefficient if stocks/supplies are greater than actual demand; it's a loss (not revenue).

Brief Introduction (continued)

Demand: Amount of a good or service consumers are willing to purchase at a given price.
No effective demand: If customers can't afford it.
Price: What a buyer pays for a unit of a good or service.
Quantity demanded: Total number of units purchased at a given price.

Law of Supply and Demand

Law of Supply and Demand: Explains how sellers and buyers interact, the relationship between availability of a particular product and consumer desire/demand, and how this impacts price.

Law of Demand

Other factors equal: Higher prices mean fewer consumers demand the product.
Lower Prices: Lead to higher quantities demanded.

Law of Demand (continued)

Diminishing marginal utility: The demand curve is always downward-sloping.
Marginal utility: The additional satisfaction or benefit a consumer gets from an additional unit of a good or service.
Example: If the price of video games drops, demand for video games increases.

Plotting and Interpreting Demand Data (Bread example)

Price (Pesos): Table showing prices (8.00 downward to 1.00 Pesos)
Quantity demanded: Table showing quantity demanded at each price (10-80)
Product: Bread

Law of Demand (Interpretation)

If the price increases, the quantity demanded decreases (and vice versa).

Factors Affecting Demand

Income of buyers: Higher income tends to lead to higher demand.
Number of potential buyers: More buyers mean potentially higher demand.
Preferences: Consumer preferences influence demand.
Complementary products: Products frequently purchased together (example).

Law of Supply

Quantities sold: The higher the price, the more goods supplied (and vice versa).
Producers: Offer more goods at higher prices because it enhances their revenue

Law of Supply (Continued)

Price increases: Producers increase the supply or production of goods.
Supply Curve Slope: Positive slope on a graph of price versus supply.

Plotting and Interpreting Supply Data (Bread example)

Price (Pesos): Ranges from 1.00-8.00 Peso-value.
Quantity supplied: Table showing how much bread sellers will offer at various prices (goes from 100 to 800)
Product: Bread

Law of Supply (Interpretation)

Prices increases: The quantity supplied increases (and vice versa).

Factors Affecting Supply

Production capacity: The producer's ability to produce goods.
Production costs: Labor and materials costs influence supply.
Competitors: More competitors may lead to decreased supply.
Ancillary factors Like: Material availability, Weather, Supply chain reliability

How Do Supply and Demand Create an Equilibrium Price?

Equilibrium price: The price where the quantity consumers want to buy equals the quantity producers want to sell.
Supply curve: Slopes upward.

How Do Supply and Demand Create an Equilibrium Price (Continued)

Supply and demand curves intersect at the equilibrium point, determining the equilibrium price where quantity demanded and quantity supplied match

What I Have Learned? Summary

Demand Curve: Shows the relationship between quantity demanded and price. Higher price, lower demand (and vice versa).
Supply Curve: Shows the relationship between quantity supplied and price. Higher price, higher supply (and vice versa).
Equilibrium: Where supply and demand intersect; the market price where quantity supplied = quantity demanded.
Excess Demand/Shortage: When quantity demanded is greater than quantity supplied (price below equilibrium).
Oversupply/Surplus: When quantity supplied is greater than quantity demanded (price above equilibrium).

Understanding Scenarios

Increased Electricity Costs: Consumers demand substitute goods like kerosene, coal, or other alternative energy sources.
Apple Market: Demand curve illustrates the quantity of apples consumers will buy at given prices.
Toyota Car Production: If production outpaces demand, excess supply can decrease the car's price.

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Description

This quiz focuses on the essential concepts of market demand, supply, and equilibrium as part of the Applied Economics course for 12 ABM students. It includes questions on graph analysis and the laws of demand and supply, helping students to solidify their understanding of these economic fundamentals.