Understanding Demand in Economics

Demand

• Demand represents a consumer's desire to purchase goods at specific prices.

Demand Curve

• A demand curve illustrates the relationship between price and quantity demanded graphically.

Law of Demand

• As prices increase, demand decreases, and vice versa, demonstrating the inverse relationship in the Law of Demand.

Quantity Demanded

• Quantity demanded refers to the amount consumers are willing to buy at a particular price point.

Price

• Price represents the cost of a product and influences consumer purchasing decisions significantly.

Substitution Effect

• The substitution effect involves consumers choosing cheaper alternatives when prices of their preferred goods rise.

Income Effect

• The income effect describes how changes in purchasing power occur based on variations in income and prices.

Normal Goods

• Normal goods are products for which demand increases as consumer income rises.

Inferior Goods

• Inferior goods are products for which demand decreases as consumer income rises.

Elastic Demand

• Elastic demand occurs when quantity demanded changes significantly in response to price changes.

Inelastic Demand

• Inelastic demand occurs when quantity demanded changes little in response to price changes.

Complementary Goods

• Complementary goods are products consumed together to enhance their usefulness.

Substitute Goods

• Substitute goods are alternative products that can replace the usual ones.

Demand Elasticity

• Demand elasticity is the measure of how sensitive demand is to changes in price.

Factors Influencing Demand

• Various elements can affect changes in consumer purchasing behavior.

Consumer Behavior

• Consumer behavior encompasses the patterns and motivations behind consumer purchasing decisions.

Availability of Substitutes

• A greater number of substitutes leads to more elastic demand.

Necessity

• Essential goods tend to have inelastic demand.

Proportion of Income

• A higher proportion of income spent on a good leads to more elastic demand.

Time

• More time allows consumers to adjust to price changes, affecting demand elasticity.

Pandesal Demand Example

• Pandesal is a Filipino bread roll that illustrates the negative price-quantity relationship, whereby demand goes up as price decreases, and vice versa.

Demand Analysis

• In demand analysis, the influences on consumer behavior and the market impact are identified.

Economic Indicator

• Demand reflects fluctuations in consumer behavior and market conditions.

Price

• Price is a main factor impacting demand levels and trends.

Non-Price Determinants

• These are factors unrelated to price that still influence demand.

Product Quality

• Higher product quality often leads to increased demand.

Substitute Products

• Cheaper substitute alternatives can reduce demand for the original product.

Complementary Products

• Lower prices of complementary products can boost demand for the related good.

Consumer Budget

• Higher incomes generally increase purchasing power and demand.

Number of Consumers

• More consumers in the market typically result in higher overall demand.

Consumer Preferences

• Shifts in consumer trends and tastes can alter demand levels.

Expected Future Prices

• Anticipated price increases may cause a rise in current demand as consumers stock up.

Pandesal

• Pandesal is a Filipino bread roll used to illustrate various demand factors.

Bread Loaf

• A bread loaf serves as a substitute for Pandesal; a price decrease in bread loaf can lower Pandesal demand.

Market Expansion

• Greater availability of Pandesal in more locations increases its demand.

Movement Along Demand Curve

• This occurs solely when the price of the product changes, affecting the quantity demanded.

Shift of Demand Curve

• Changes in non-price factors, such as income or preferences, alter demand levels, causing the entire curve to shift.

Demand Elasticity

• This measures the responsiveness of quantity demanded to price changes.

Price Elasticity of Demand

• This describes the specific relationship between price changes and the corresponding changes in demand.

Elasticity Calculation Formula

• $ELASTISIDAD = \frac{Qd2-Qd1}{(Qd1+Qd2)/2} \cdot \frac{P2-P1}{(P1+P2)/2}$

Qd1

• Qd1 represents the initial quantity demanded before a price change.

Qd2

• Qd2 represents the new quantity demanded after a price change.

P1

• P1 represents the initial price before a demand change.

P2

• P2 represents the new price after a demand change.

Demand Schedule

• It's a table showing the quantity of a product sold at different price levels.

Example Elasticity Value

• An example calculated elasticity for Pandesal is -0.33.

Elastisidad ng Demand

• It is a measure of demand sensitivity to price changes, in Tagalog.

Negative Value

• A negative value in elasticity indicates an inverse relationship between price and quantity demanded.

Absolute Value

• Is used to assess the level of elasticity, disregarding the negative sign.

Elastic Demand

• Demand changes significantly with price fluctuations.

Unit Elastic Demand

• Price and quantity changes are proportionally equal.

Inelastic Demand

• Quantity changes very little despite price changes.

Perfectly Elastic Demand

• Demand exists only at one specific price point.

Perfectly Inelastic Demand

• Quantity demanded remains constant regardless of price.

Pandesal

• Is an example of a product with inelastic demand.

Consumer Perception

• How consumers view products as essential affects demand elasticity.

Kurba ng Suplay

• The graph visually represents the relationship between price and supply ("Supply Curve" in Tagalog).

Law of Supply

• As prices rise, quantity supplied also increases, reflecting a direct relationship.

Supply Elasticity

• Measures how sensitive the quantity supplied is to changes in price.

Factors Affecting Supply

• These encompass various elements that influence market supply levels.

Willingness to Supply

• Producers' readiness to offer goods at certain prices is their "willingness to supply."

Quantity Supplied

• Refers to total amount of goods producers are willing to sell at a given price.

Market Changes

• Involves shifts in supply and demand dynamics that alter market equilibrium.

Luxury Goods

• Products with elastic demand due to high price sensitivity.

Essential Goods

• Products with inelastic demand, such as medications, show little change in demand regardless of price.

Telecommunications Services

• These services are examples of a product with inelastic demand.

Gasoline

• Is a commonly cited example of something with inelastic demand.

Produce

• Produce can be an example of something with perfectly elastic demand due to available substitutes.

Supply

• Denotes the total quantity of goods producers are prepared to sell.

Positive Relationship

• As price increases, the quantity supplied also increases.

Price

• Is the main factor influencing decisions about how much to supply.

Non-Price Determinants

• Are factors that affect supply that are not related to its price.

Production Costs

• Higher production costs reduce supply because they lower profits.

Technology

• Improved technology enhances production efficiency and increases supply.

Government Policies

• Taxes and regulations influence supply levels.

Number of Producers

• More producers in a market lead to a higher overall supply.

Natural Disasters

• Disrupt production, decreasing the availability of supply.

Expected Future Price Changes

• Anticipated price increases can cause a reduction in current supply.

Elasticity of Supply

• Measures the responsiveness of quantity supplied to price changes.

Elastic Supply

• A small price change results in a large change in the quantity supplied.

Inelastic Supply

• A Large price change results in a small change in the quantity supplied.

Time

• Allows producers more opportunity to effectively adjust supply.

Production Capacity

• Higher production capacity enables an easier response to price changes, affecting supply elasticity.

Pandesal

• A Filipino bread roll used to illustrate supply factors.

Flour Price Impact

• Increased flour prices decrease Pandesal supply by raising production costs.

New Ovens Impact

• Efficient ovens increase Pandesal production capacity, boosting supply.

Government Taxes Impact

• Lower taxes increase profits and Pandesal supply.

New Bakeries Impact

• More bakeries increase competition and Pandesal supply.

Typhoon Impact

• Typhoons can disrupt production and reduce supply.

Anticipated Price Increases Impact

• Producers reduce current supply to maximize profits from future higher prices.

Market Structures

• Refers to the different forms markets take, based on factors like competition and the number of sellers and buyers.

Type of Product

• The goods being sold influences the structure of a market.

Number of Buyers and Sellers

• The level of market competition.

Unique Needs of Participants

• Shapes features of the market.

Pure and Perfect Competition

• Identical products and many buyers and sellers.

Monopolistic Competition

• Many sellers with differentiated products.

Oligopoly

• Dominated by only a few powerful firms.

Monopoly

• • Only one producer for a product.

Identical Products

• Products virtually the same from seller to seller.

Free Entry and Exit

• No barriers to market participation.

Perfect Information

• Access to market data for all participants.

Efficient Resource Allocation

• Competition makes optimal distribution of resources.

Lower Prices

• Lower prices are a result of firms competing.

Higher Quality Products

• Firms strive to produce enhanced products.

Differentiated Products

• Products with unique features.

Brand Loyalty

• Consumer preference for one specific brand.

Advertising

• Advertising highlights that unique branding.

Non-price Competition

• Different strategies used to attract customers.

Variety for Consumers

• Wide range of products available to market.

Potential for Innovation

• Incentives for firms to develop new products.

Few Sellers

• Small number of firms control the market.

Barriers to Entry

• New firms are restricted.

Collusive Oligopolies

• Cooperation between firms to help set prices and production.

Non-Collusive Oligopolies

• Firms who compete while influencing the actions of other firms.

Single Seller

• One firm controls market.

No Close Substitutes

• Absence of alternatives for products.

Price Control

• Ability to set prices.

Potential for Economies of Scale

• Cost efficiencies from large-scale operations.