Demand and Supply (2024-2025) PDF

DEMAND AND SUPPLY Objectives It is the Season, and It’s Black Friday Sale Again! At the end of this Black Friday has arrived, and if you're in the market for new sneakers lesson, the learner or gym gear, Nike's Black Friday deal is something yo...

DEMAND AND SUPPLY Objectives It is the Season, and It’s Black Friday Sale Again! At the end of this Black Friday has arrived, and if you're in the market for new sneakers lesson, the learner or gym gear, Nike's Black Friday deal is something you definitely don't will be able to: want to miss. They have a wide range of options, from Jordans to Dunks and everything in between, so you can easily find something 1. define demand and supply; for everyone in your family. Plus, the prices are affordable, making it a 2. relate the factors great opportunity to outfit your entire family without breaking the affecting the price and bank (Yellin, 2023). quantity of goods and services in the market; 3. explain the factors affecting the price and quantity of goods and services in the market; 4. examine the demand and supply and its interactions through the market equilibrium; 5. calculate the price and quantity in supply or demand; 6. analyze the effects of shortage and surplus on the price and quantity of goods and services in the market; Image from Pinoy Fitness 7. Analyze the factors affecting demand and Nike’s Black Friday sale has sparked excitement among consumers, supply who are closely monitoring product prices. Consumers are eager to 8. Make intelligent decisions in response to know if they can afford new products within their budget. The changes in factors announcements create buzz and interest in the market, influencing Consumption Choices affecting demand and supply competitors' pricing strategies. As a result, competitors may need to How their adjust do we decide prices on whatcompetitive to remain products weorare going to choose? differentiate What themselves 9. propose a method of response/solution to do we from the consider every time new products beingwe shop? HowWhy introduced. did you wouldpick your the choices prices of problems caused by in thecompanies these activity? Ataffect random? theFavorites? other companies? In the first place, shortage and surplus; what’s the need for this announcement event? 10. form sound judgments We consider many factors in buying and consuming goods and in response to changes in factors affecting In services. However, this lesson, we’llwhat we’ll know focus theonrelationship one factorofthat pricewetoconsider quantity the is demand and supply; mostitincomes when to the Budget consumption: Constraints consumers’ perspective and the producers’ 11. apply the definition of perspective. We’ll discuss one of the most important models in demand and supply to economics. We’ll examine how price changes affect the demands every family's daily life; and the supplies within a market. And how the prices within the 12. and value the Lasallian market are determined by demand and supply. way of speaking and acting in sharing personal experience.  Demand The economist used the term demand to give value to the goods and services that the consumers are willing and able to buy given a price. Consumers must be willing to purchase the goods or services that show their tastes and preferences. On the other hand, the demand considers the consumers’ ability to pay and purchase since a price is involved. And when there’s a price, there’s money. So, we need to consider the consumers' purchasing power or budget constraints in the equation. In Lesson 3, we discussed the factors that affect our consumers' choices. We mentioned that the consumers maximize their benefits with the utility or the satisfaction they receive. The consumers also have a limited budget that affects their choices. We also mentioned some of the effects of the changes in price and income that may affect the choices of the consumers. Now, in this model, we will go deeper and explore Read: What Is Black Friday and the behavior of consumers more. Why Is It Important for E- commerce in the Philippines? Law of Demand Link: https://beglobalecommercecorp.com/black-friday-for-e- commerce-in-the-philippines/ The law of demand states that as we increase the price of the product, the quantity demanded for the product decreases, and as we decrease the price, the quantity demanded for the product increases, ceteris paribus. The Law of Demand states that there is an inverse relationship between quantity demanded and price; whereas one variable increases, the other variable decreases. Quantity demanded pertains to the quantity of the goods or services and the consumer’s ability and willingness to purchase that good or service. This law shows the inverse relationship between the price of the good or the service and the quantity demanded within a market. We have three ways to show this relationship or law: 1. Demand Function This is the mathematical expression of the demand by showing the inverse relationship between the quantity demanded and its price. The law of demand states Qd = a – bP that as product prices increase, quantity Qd = quantity demand demanded decreases, and vice versa, a= all factors affecting price other than price (e.g. income, fashion) indicating an inverse relationship between b= slope of the demand curve quantity demanded and P = Price of the good. price. The “- b” represents the negative slope, which also shows the inverse relationship between the quantity demanded (Qd) and price (P)  Example: "Ceteris paribus" is a Latin concept used in Qd = 20 – 2P economics and social sciences to isolate the Given a price, let’s say, P5, we will be given how many of the effect of a variable by goods/services will be demanded (Qd) based on the equation. assuming all other factors remain Qd = 20 – 2(5) constant. This simplifies Qd = 20 – 10 analysis and helps Qd = 10 understand cause- effect relationships, Now if we increase the price(P), based on the law of demand, the but in reality, holding quantity demanded (Qd) must decrease. Let’s see, given a price of all variables constant P8… can be challenging. Qd = 20 – 2(8) Qd = 20 – 16 Qd = 4 As you can see, from 10 units of the product, the quantity Goals in decreased demanded to 4 units Studying Political of the product. Now, if we Science decrease the price, it will increase the quantity demanded. So let’s set the price to P2… Qd = 20 – 2(2) Qd = 20 – 4 Qd = 16 Now, our quantity demanded increased from 10 units to 16 units. Which means it showed the law of the demand. 2. Demand Schedule This is a tabular representation of the demand by showing one column for the quantity demanded. If we are going to compute for all the corresponding quantity demanded based on different prices, we can place it in a table to show the increase and decrease of the values. Quantity Price (P) Demanded (Qd) A demand schedule is a 20 0 table illustrating consumer 18 1 willingness to purchase goods or services at 16 2 different price levels, 14 3 illustrating the relationship between price and quantity 12 4 demanded and its impact 10 5 on consumer behavior. 8 6 6 7 4 8 2 9 0 10  The law of demand is more visible in the table. As the quantity demanded decreases, the price for the product increases, and vice versa. 3. Demand Curve Now, the final expression for the law of demand is the demand curve. It shows the relationship between the price and the quantity demanded through a graph. The x-axis or the horizontal axis will always be for the quantity, while the y-axis or the vertical axis will be for the price of the product. A demand curve graphically illustrates the relationship between product price and quantity demanded, indicating a downward slope as price decreases and vice versa. Goals in Studying Political Science Trivia: Our budget line which shows the budget constraint of the consumer and the combination of the goods or services they can consume and purchase at the same time, also looks like the demand curve Supply Now, for the producer’s side, we have the supply. In lesson 4, we discussed that the producers maximize their profit by minimizing their costs. This means the higher the price for the product, considering that the cost per product is held constant, the higher the produce. The more quantity of products that the producer sells, given that they Watch: Why Maslow's Hierarchy Of Needs Matters by are selling it at a higher price, the more profit they are going to gain. the School of Life https://youtu.be/L0PKWTta7lU Supply is the willingness and ability of the producers to sell the good or service. So again, the higher the price, the more willing the producers would sell the product. This means that the producers will receive more income. The law of supply states that as a product's price increases, so does the quantity supplied by producers, implying a direct relationship between price and quantity. Image from WallStreetMojo Law of Supply The law of supply states that as the price (P) of the good or service increases, the quantity supplied (Qs) also increases. On the other hand, Goals if the in Studying price Political of the good Science or service decreases, the willingness of the producers to sell the good or service also decreases, ceteris paribus. In the supply’s case, the quantity supplied, on the other hand, shows the number of units the producers are willing to produce and sell. Now, we can also show the relationship of the law in three ways: 1. Supply Function This is the mathematical expression that shows the relationship between the quantity supplied and the price changes. Qs = c + dP Qs = quantity supplied c = plots the starting point of the supply curve on the Y-axis intercept d = slope of the supply curve P = Price of the good. The “d” represents the positive slope, which also shows the positive relationship between the quantity supplied (Qs) and price (P). Example: Qs = 8 + 2P This equation can also be written or presented as: P = 0.5Qs – 4 This is derived from the Qs = 8 + 2P by transposition: Qs = 8 + 2P Qs – 2P = 8 -----------> Let’s transpose P to the left side since we want to isolate P  -2P = 8 – Qs ---------> Since we want P to remain on one side, we have to transfer Qs to the right side. -2P = 8 – Qs ----------> Then, we want to take the cancel -2, so we -2 -2 have to divide both sides by -2. P = 8 – 1Qs ------------> So let us now simplify the equation. -2 -2 P = -4 + 0.5Qs --------> Let us rearrange the values so that we won’t have a “negative” value in the equation. P = 0.5Qs – 4 Why did I show you this equation? It is because the producers are not price takers in a real-life situation. They decide what will be the price of the product. They can know the price by knowing the quantity of the products they will supply. This is why the price (P) is dependent on the quantity supplied (Qs). Now, let’s continue to the example where the given price is, let’s say, P5. How many products will the producers produce? Let’s practice your Qs = 8 + 2(5) understanding with our Qs = 8 + 10 computation. Qs = 18 Try this! Now, if we increase the price(P), based on the law of supply, the quantity supplied (Qs) must increase. Let’s see, now that we have increased the price from P5 to P8… Qs = 8 + 2(8) Qs = 8 + 16 Qs = 24 As you can see, from 18 units of the product, the quantity supplied increased to 24 units of the product. Now, if we decrease the price, the quantity supplied will also decrease according to the law of supply. So, let’s set the price to P2… Qs = 8 + 2(2) Qs = 8 + 4 Qs = 12 Now, as you can see, the quantity supplied decreased from 18 units to 12 units. This means that the producers are not willing to produce more products since the price of that product decreased. 2. Supply Schedule Similar to the demand schedule, the supply schedule shows all the values in a table to show the relationship between the price of the good and the quantity supplied.  Quantity Supplied (Qs) Price (P) Furthermore, we will ponder more on the discussion of knowledge and understanding 8 of government. With that, 0 we will start discussing the Primer on the Philippine State and Government. 10 1 A supply schedule is a 12 2 table that displays the 14 3 quantity of a good or 16 4 service producers can supply at different prices. 18 5 20 6 22 7 24 8 26 9 28 10 As the price continues to increase, we can see that the corresponding quantity supplied also continues to increase. 3. Supply Curve The supply curve is the graphical representation of the positive relationship between the price and the quantity supplied. Again, our x-axis or horizontal axis is for the quantity of the products, and the y-axis or vertical axis is for the price of the product. A supply curve is a visual representation of the relationship between a product's price and the quantity producers are willing to supply, illustrating how supply changes. Market Equilibrium A Market Equilibrium is met when our demand for a certain good or service is met with the supply by the producers. In this situation, there is no tendency to change the price since the consumers and the producers agree on the price and the number of products to be produced and bought. We are now going to show how the market equilibrium is achieved in 3 different ways.  1. Demand and Supply Function In this case, we’ll combine the equations for both demand and supply to determine how many of the products the producers should produce to meet the consumers’ demand and at what price the producers should sell the product given the quantity of the products made. Q* = equilibrium quantity P* = equilibrium price In our example, we have Qd = 20 – 2P for the demand function and Qs Watch: Market equilibrium | = 8 +2P for the supply function. There are three ways to get the Supply, demand, and market equilibrium quantity and price using the same equations: equilibrium | Microeconomics by Khan Academy The first one is having our Qd = Qs equal. Since we only have Q*at the equilibrium point, our Qd is equal to Qs and the equilibrium quantity https://youtu.be/PEMkfgrifDw (Q*). ?feature=shared So again, since we have an equilibrium quantity, this means Qd = Qs that the demand of the consumers is equal to the supplied products in the market. So, since Qd = 20 – 2P, Qs = 8 20 – 2P = 8 + 2P +2P, and Qd = Qs, therefore… Now we want to look for the equilibrium price first. So, we -2P – 2P = 8 – 20 transpose the values at one side and the variables on the other side. A negative value minus a -2P + - 2P = 8 – 20 positive value is also equal to a negative value plus another negative value. Now we want to leave one -4P = -12 side as P only to find the equilibrium price, so we want to cancel out -4. To cancel out, we need to -4P = -12 divide both sides by -4. -4 -4 P = 3 or P* = 3 So, our equilibrium price is P3.00.  After knowing the price, we can now know how many products the suppliers should produce in order to meet the market demand. We can use either equation for demand and supply since Qd = Qs = Q*. So, we just replace P with 3 to know the equilibrium quantity. If we use Qd: If we use Qs: Qd = 20 – 2P Qs = 8 + 2P Watch: Market equilibrium | Qd = 20 – 2(3) Qs = 8 + 2(3) Supply, demand, and market Qd = 20 – 6 Qs =8+ 6 equilibrium | Qd = 14 Qs = 14 Microeconomics by Khan Academy As you can see, we got the same answer for Qd and Qs, which means https://youtu.be/PEMkfgrifDw the price of P3.00 is the equilibrium price, and 14 units is our equilibrium ?feature=shared quantity. Now, the second way to look for the equilibrium quantity and equilibrium price is to look for the Q first. In order to do that, we’ll use the equations as a function of P. So, in our example where: Qd = 20 – 2P Qs = 8 +2P If the given equations are a function of P instead of Qd or Qs, you can use this way. You can also change the function of Qd and Qs to know the equilibrium quantity before getting the equilibrium price. Qd = 20 – 2P ----> P = 10 – 0.5Qd Qs = 8 + 2P ------> P = 0.5Qs – 4 So again, since we have an equilibrium price this means P of Qd = P of Qs we have the same price for Qd and Qs Therefore… 10 – 0.5Qd = 0.5Qs – 4 Since we wanted to know first for the equilibrium quantity, 10 – 0.5Q = 0.5Q – 4 therefore Qd = Qs. So we wanted to isolate Q on -0.5Q – 0.5Q = -4 – 10 one side, let’s say the left side…  Let us simplify the equation. -0.5Q + -0.5Q = -4 + -10 -1Q = -14 To cancel out the negative -1Q = -14 sign in the Q, we need to -1 -1 divide both sides by -1. So, our equilibrium quantity is Q = 14 or Q* = 14 14 units of the product. So, we got the same quantity from the first way. Now, let’s use the Q in any equations to get the equilibrium price. If we use P of Qd: If we use P of Qs: P = 10 – 0.5Qd P = 0.5Qs – 4 P = 10 – 0.5(14) P = 0.5(14) – 4 P = 10 – 7 P =7–4 P=3 P=3 We also got the same price as the first way. Now for the third way of determining the equilibrium price and quantity, remember when it was mentioned earlier that the function of quantity Supplied is usually in the function of its Price? We’ll use the function of price for one side and the function of quantity on the other. So, in our example where: Qd = 20 – 2P Qs = 8 +2P ---> P = 0.5Qs – 4 So again, since we have an Qd = Qs equilibrium quantity and P of Qd = P of Qs equilibrium price… We have replaced the value Qd = 20 – 2(0.5Qs – 4) of P with the equation of P of Qs. Since Qd = Qs = Q… Q = 20 – 2(0.5Q – 4)  So, we wanted to isolate Q on Q = 20 – (Q – 8) one side, let’s say the left Q = 20 – Q + 8 side… Q + Q = 20 + 8 Let us simplify the equation. Q + Q = 20 + 8 2Q = 28 To cancel out the 2 with the 2Q = 28 Q, we need to divide both 2 2 sides by 2. So, our equilibrium quantity is Q = 14 or Q* = 14 14 units of the product. So again, we got the same answer for the equilibrium quantity. Now let’s use the function of P to determine the equilibrium price. If we use P in Qd: If we use P of Qs: Qd = 20 – 2P P = 0.5Qs – 4 14 = 20 – 2P P = 0.5(14) – 4 14 – 20 = -2P P =7 –4 -6 = -2P P=3 -2 -2 3=P We also got the same answer for the equilibrium price. 2. Demand and Supply Schedule Now, if we’re going to use the schedule in order to determine the equilibrium price and quantity, we just need to combine the schedule of the demand and supply in one schedule.  Quantity Price (P) Quantity Supplied Demanded (Qs) (Qd) 20 0 8 18 1 10 16 2 12 14 3 14 12 4 16 10 5 18 8 6 20 6 7 22 4 8 24 2 9 26 0 10 28 We can quickly see that at the price of P3.00 have the same quantity for demand and for supply. 3. Demand and Supply Curve Lastly, in drawing the curves of demand and supply in one graph, we’ll plot the points from the demand and supply schedules. We’ll see that there is a point in the graph we’re the demand curve intersects with the supply curve.  SHIFTS IN THE DEMAND AND SUPPLY Now, in reality, the decision-making of the consumers and producers is not only influenced by the changes in prices. There are other factors A shift in the demand besides the prices of the products that affect the behavior of the and supply graph consumers and producers. signifies a change in the position of the entire Before we proceed, we want to emphasize the difference between curve, influenced by quantity demanded and demand, as well as the quantity supplied and factors like consumer supply. For both the quantity demanded and quantity supplied, it is only preferences, income, influenced by the changes in prices. If we focus on the demand and population, technology, supply curves, the change in price only triggers a change in the input prices, and quantity that lies in the same curve. government policies, resulting in changes in market equilibrium price For example: and quantity. As you can see, the quantity increased when we decreased the price. The point changed from point A to point B. So, the change is only within the demand curve. The same goes for the supply curve. So, this means the change is either quantity demanded or quantity supplied only. For the shifts in demand and supply, since there is a shift, this means the whole demand or supply curve changes. It shifts to the right (or increases) or to the left (or decreases).  Factors affecting the Demand and Supply Let us take a look and enumerate the different factors that affect our demand and supply. I. Factors Affecting the Demand Let’s start with the Non-Price Determinants of Demand. Consumers’ demand for a certain good or service constantly changes because of so many factors. These factors don’t change the price of the identified. Goods or services are also known as demand shifters. The following factors that affect the demand for a good or service: It is crucial to remember that these factors can 1. The income of the individual interact with one another, affecting supply Of course, as consumers, we have our budget constraints. Because of this, and demand in both the we depend on our demand for a commodity on the amount of money short and long term. available to us. When it comes to income, we have different types of External events, such as goods, which we discussed previously in Lesson 3. We’ll elaborate on this natural disasters, more in our next lesson. For now, we’ll focus on the effects of the change of changes in global income to normal goods. markets, or unexpected adjustments in consumer With an increase in our income or budget constraint, the number of goods behavior, can also have or services that we can now consume also increases. Our purchasing an impact on supply and power increases. On the other hand, if our income decreases, we won’t demand dynamics. have enough budget or money to buy the same amount of goods or services; therefore, we consume less of the goods or services. An example of this is your “baon” every day in school. Your parents give you money so that you’ll be able to buy for your snacks and lunch for the day. For example, your parents usually give you P150.00 per day as your “baon.” With that, you can buy two orders of siomai. Now, because of your good grades in Social Science, your parents increased your “baon” to P300.00. Because of this, you can now afford to consume four orders of siomai. The next day, your parents saw your grades in your other subjects, and it’s not that good. They decided to decrease your “baon” to P75.00. Now, you can only consume one order of siomai.  So, as you can see, there is a positive relationship with the demand and the income of the individual, as long as the good identified is a normal good. 2. Prices of related commodities Now, for the prices of other commodities related to the identified good or services, there is an effect on its demand. We have two goods that we discussed and mentioned in Lesson 3. a. Substitutes If the other commodity is defined as a substitute good, then it means we are giving other options to the consumer. If the price of the substitute good increases, the demand for the identified goods or services will increase. On the other hand, if the price of the substitute good decreases, the demand for the identified goods or services will also decrease. To understand this more clearly, here’s an example. Let us say our identified good or service is Jollibee (not sponsored). Our substitute Read: Law of Supply and Demand in Economics: How It good is, of course, its biggest competitor, Mcdonald’s (also not Works | Jason Fernando, sponsored). Again, the main good that defines our demand is Jollibee. Investopedia with our demand for Jollibee. We are taking a look at the effects of the Link: price changes in McDonald’s https://www.investopedia.com/t erms/l/law-of-supply- McDonald’s decided to decrease its price to compete with Jollibee. demand.asp Because of the decrease in price at Mcdonald’s, the quantity demanded by Mcdonald’s will increase. And because of the increase in quantity demanded in Mcdonald’s, most likely, the demand for Jollibee will decrease since they will change choices from Jollibee to Mcdonald’s. On the other hand, if McDonald’s decides to increase its price, its consumers will look for cheaper alternatives, such as Jollibee. So, the demand for Jollibee will increase. b. Complements For complements, we’re talking about goods that go hand in hand. This means if you’re going to buy the identified good or service, there is another product partnered with the good or service. This means that if the price of the partnered product increases, your demand for the identified commodity decreases. If the price of the partnered product decreases, your demand for the identified commodity increases. An example of this is the PlayStation and the games. Our main commodity is the games that are only available on the PlayStation. Now, if the price of a PlayStation increases, you won’t buy the PlayStation since it has become too expensive. And because of this, you will also demand less of the games. But if the price of the PlayStation decreases, of course, you’ll take that opportunity and buy that PlayStation. And if you have a PlayStation, you’ll need games. So, your demand for games will increase. 3. Climate and Weather With the constant change in our weather and with the increase in pace when it comes to climate change, our routines and consumption also change. Some goods and services are only practical to use or consume during a specific season or weather. Because of this, the demand for those goods and services also changes. For example, the demand for jackets increases during the rainy season here in our country. Christmas decorations also increase in demand during the months of September to December due to the Christmas celebrations. 4. Taste and Preferences Taste and Preferences are included since this is what the producers are targeting to persuade the consumers to buy their products. If the taste or preference for a commodity increases, then the demand for that commodity also increases and vice-versa. 5. Expectations regarding future prices Sometimes, the prices of some commodities are announced before they change the price. This can be announced through radio or television news. Or it can be a promotion of a business. Once the consumer expects a price change, their behavior towards the product may also change. If the consumer is expecting that the price of the commodity will increase in the future, the demand for the commodity in the present time will increase. On the other hand, if the consumer is expecting a decrease in the price of the commodity in the future, the demand during the present time will decrease. For example, gasoline prices will increase tomorrow morning. Since the price today is cheaper than the price tomorrow, the consumers will have their cars filled up today so that they won’t need to buy gasoline tomorrow when the prices are higher. So, the gasoline demand today will increase and will decrease tomorrow. Now, if it’s announced that the gasoline prices will decrease tomorrow, the consumers will wait for the prices of the gasoline to drop before having their cars consume gasoline. Because of this, the gasoline demand today will decrease. II. Factors Affecting the Supply Let us now take a look at the factors that can and may affect the decisions of the producers when it comes to their supply. Besides the price of the product, which is equivalent to the profit they are going to earn, there are Non-Price Determinants of Supply. These are the following: 1. Price of inputs If we have income or budget constraints for the consumers, of course, we also have the budget for the producers. It is not about changing the budget because it will be harder to just adjust the investment in a business, but it is about the changes in the prices of the factors of production.  As it is mentioned, we can’t just increase our budget. We’ll be needing investors or even bank applications to increase our budget. And sometimes, in putting up a business, money is hard to find. So, once we have a budget, it is technically fixed, and we can’t go over the budget. So, every time we have price changes in the market for our factors of production, our decisions as producers change. When the price of the factors of production increases, this means they become expensive. It will affect the number of inputs that we can buy. Now, If there is a decrease in the number of inputs we buy, the number of supplies we can produce will also decrease. Watch: Supply and Demand On the other hand, if we have a decrease in the prices of the factors of Explained in One Minute by production, this means our purchasing power for the inputs increases. One Minute Economics We can buy more inputs given our fixed budget. With the increase in inputs, we can now increase the supply of goods or services. https://youtu.be/GqeRnxSuLFI ?feature=shared 2. Price of related commodities Our supply is also affected by the price changes of related goods or services. The effect is just different from demand. a. Substitutes For the substitute goods, when the price of the substitute increases, for the suppliers of the substitutes, this means more profit. So, they will surely increase the number of substitutes. Now, since the substitutes are more “profitable” than the specified product, we would decrease the supply for the identified product. Therefore, if the price of the substitute decreases, then the supply of our specified product will increase. An example of this is again Jollibee and Mcdonald’s, wherein Mcdonald’s is our substitute good. Now, if McDonald’s increased their price, from Mcdonald’s point of view as the producer, this means that they will gain more profit with the price increase. Therefore, McDonald’s will increase their supply for more profit. For Jollibee, because there is an increase in price at McDonald’s, Jollibee’s products are cheaper in the market. Thus, it will generate a lower profit from the point of view of the producers. In this case, Jollibee will then decrease its supplies to minimize loss. On the other hand, if Mcdonald’s decides to decrease its price, Mcdonald’s will decrease its supply based on our law of supply. While Jollibee has a greater price than McDonald’s, it means that there’s more profit for Jollibee, thus increasing the supply of Jollibee. b. Complements For complements, since the related product goes together with the specified product, the changes in the prices of related commodities have the same effect on the specified products. This means when the price of related products increases, the supply for the related products will increase as well as the for the specified products and vice versa. An example, again, is the PlayStation and its games. When the PlayStation, our related product, increases its price, then the supplier of both PlayStation and its games will increase its production. Since the PlayStation production will increase due to higher profits because of its price, the games will also increase their production. With the decrease in the price of PlayStation, there will be a decrease in production for PlayStation, and with this, a decrease in production for the games. 3. Number of firms The number of sellers within a market also affects the behavior of the producers. The more sellers within the market, the heavier the competition. And because there are a lot of producers selling the same product, the price of that product is forced to decrease. Applying the law of supply, a decrease in price means a decrease in production or supply due to less profit. If there are fewer sellers within the market, there is a greater tendency for the price to be higher due to the “rarity” of the product in the market. A higher price means higher profit, so the producers will increase their supply to gain more profit. 4. Expectations regarding future prices The same explanation applies to the demand; future changes in prices can also affect the behavior of the suppliers. If, in the future, there is an expected increase in the price of the product, the producer will hold off the production or decrease the supply in the present and increase the supply in the future. And if there is a decrease in the price in the future, the supply will increase now in the present before the price decreases. Changes in Equilibrium Now, combining all the situations mentioned above in one graph will also give a change in our equilibrium. Again, the equilibrium point is where the consumers and producers both agree on the price and the number of products in the market. If there is a change in the demand due to the non-price determinants, the equilibrium price and equilibrium quantity changes also:  When the demand increases, it shifts our demand curve to the right, like the demand curve 2, which gives us a higher equilibrium price, which is P2, and a higher equilibrium quantity, which is Q2. When the demand decreases, the demand curve shifts to the left, like the demand curve 3, which gives us a lower equilibrium price and quantity (P3 and Q3). When the supply increases, the supply curve shifts to the right, like the supply curve 2. Now, because of this, our equilibrium price has decreased to P2 while our equilibrium quantity has increased to Q2. When the supply decreases, our supply curve shifts to the left, like the supply curve in 3. It gives us an increase in the equilibrium price (P3) and a decrease in the equilibrium quantity (Q3). Now, in some situations, there are changes in both the demand curve and the supply curve. But we will not dwell on it since it will need a lot more information to pinpoint the exact change in the demand curve and supply curve. Watch: Market Equilibrium, Shortage vs Surplus by PRICE CEILING VS FLOOR PRICE InLecture https://youtu.be/gQz- I0Q457A?feature=shared In reality, the producers are not price takers. They set their own price to define their own projected income and profit. So, what will happen to our equilibrium point if the price set is above or below the equilibrium price?  Now in the graph above shows us two situations: The first situation is when the price (P2) is set below the equilibrium point. At this price, the quantity supplied (Qs2) is less than the quantity demanded (Qd2). In a real-life situation, the producers are willing to produce in a small quantity since it will give them a lesser profit. At the same time, the consumers will demand the product since their purchasing power has increased, given the decrease in price. This means there is a shortage in the product. The second situation is when the price (P3) is set above the equilibrium price. Because of this, the producers will produce more of the product to gain more profit, while our consumers will consume less because of the decrease in their purchasing power. So, our quantity supplied (Qs3) is now greater than the quantity demanded (Qd3), which gives us a surplus of the product. Price ceilings and floor Now, these situations are not all bad because these are actually used prices protect consumers by governments to control prices and intervene in the economy. We by preventing high have two price controls that can be applied to certain products: price prices, especially in ceiling and floor price. shortages. They set maximum prices to ensure affordability for 1. Price ceiling consumers and minimum prices to protect It is the maximum price legally set by the government in order to help and producers in high-cost protect consumers. To explain this, we’ll use an example. Some products, industries. However, both which are mostly basic necessities, are too expensive for other consumers, can have unintended especially for those in the lower class. To help them afford the basic consequences, such as necessities, the government can set the price lower compared to the shortages or surpluses. market to help the consumers. An example of this is our NFA rice. The price Policymakers should of NFA is way cheaper than the regular price of the cheapest type of rice carefully consider the we have so that the lower class can buy rice for their daily needs. potential impacts of these measures before 2. Floor Price implementing them. It is set legally as the lowest price possible to help the producers. An example of this is the minimum wage. The producers, in this case, are the laborers who sell services to companies (consumers). The government set a minimum wage so that the laborers would not be exploited and would be given the right amount of payment they deserved. To show it in a graph:  Now, don’t be confused with the terms and the placement of the price in the graph. Again, we are helping the producers with the price ceiling, so it makes sense that we set the price higher than the equilibrium price. We are protecting the consumers for the floor price, so it is only logical to set the price below the equilibrium price. Mental Aerobics: Consumer Choices Here's a short quiz about the topic to test your understanding of the lesson. This will help you comprehend more about this lesson. Instruction: Read the questions below and choose the letter of the correct answer. 1. What is the law of demand? A) The higher the price of a good, the lower the quantity demanded B) The higher the price of a good, the higher the quantity demanded C) The lower the price of a good, the higher the quantity demanded D) The lower the price of a good, the lower the quantity demanded Answer:_________ 2. Which of the following is not a factor affecting the price and quantity of goods and services in the market? A) A consumer preferences and demand B) Production costs and technology C) Government regulations and taxes D) Exchange rates and international trade Answer:_________ 3. What happens to market equilibrium price and quantity when there is an increase in both demand and supply for a product? A) Equilibrium price increases, and quantity decreases B) Equilibrium price decreases, quantity increases C) Equilibrium price and quantity both increase D) Equilibrium price and quantity both decrease Answer:_________ 4. When a shortage occurs in the market for a specific good or service, what is the most likely effect on the price and quantity of the product? A) Price increases and quantity decreases B) Price decreases and quantity increases C) Price increases and quantity increases D) Price decreases, and quantity decreases Answer:_________ 5. In the market for avocados, if there is a surplus of avocados, what is the most likely effect on the price and quantity of avocados? A) Price increases and quantity increases B) Price decreases and quantity decreases C) Price decreases and quantity increases D) Price increases and quantity decreases Answer:_________ Many people are racing to get new shoes from Nike during the Black Friday sale (where products have marked-down prices) and the holiday season. Others are coming from faraway places and provinces in the Philippines to go to big stores in Metro Manila. After understanding this lesson, how can changes in factors such as consumer preferences, income levels, and the prices of related goods influence the demand for Nike products? Drawing Connection: Addressing Shortage Scenario: Due to a sudden surplus of strawberries in the market, prices have plummeted, leading to significant financial losses for strawberry farmers. At the same time, consumers are not able to purchase all the surplus strawberries before they spoil, leading to food wastage. Propose a method to address the problems caused by the surplus of strawberries in the market. How can farmers and policymakers work together to manage the surplus and ensure that both the farmers and consumers are not adversely affected? Response/Solution: Exit Slip- “3,2,1” Instruction: Answer the self-assessment by completing the statements below: ❑ List 3 things you remember from the lesson. ❑ Give 2 examples of what you learned. ❑ Write 1 question you have or something you are confused about. References: Kolmar, M. (2017). Principles of Microeconomics: An Integrative Approach. St. Gallen, Switzerland: Springer International Publishing. Kunst, R. M. (2006, March). Introduction to Macroeconomics Lecture Notes [PDF]. https://homepage.univie.ac.at/robert.kunst/macro1.pdf Mankiw, N. G. (2018). Principles of Economics (8th ed.). Boston, MA: Cengage Learning. The Closure Library Authors. (2008). Demand function. Retrieved June 02, 2020, from https://sites.google.com/site/economicsbasics/demand- function Leswing, K., Haselton, T., & Bursztynsky, J. (2020, September 16). Here's everything Apple just announced. Retrieved September 30, 2020, from https://www.cnbc.com/2020/09/15/apple-eventlive-updates.html Webster, A. (2020, September 16). The 10 biggest announcements and trailers from Sony's PS5 showcase. Retrieved September 30, 2020, from https://www.theverge.com/2020/9/16/21437770/ps5- price-release-date-event-news-trailers-announcements Yellin, J. (2023, November 25). You can still load up on sneakers and activewear from Nike’s Black Friday Sale | CNN underscored. CNN. https://edition.cnn.com/cnn-underscored/deals/nike-black-friday-deals- 2023-11-24