ApEco-Q1-Module-3 PDF

QUARTER 1 MODULE 3 MARKET SUPPLY AND DEMAND, MARKET EQUILIBRIUM Objective: DIFFERENTIATE DEMAND AND SUPPLY DETERMINE THE FACTORS AFFECTING BOTH DEMAND AND SUPPLY GRAPHICALLY ILLUSTRATE DEMAND AND SUPPLY What is Demand? The willingness and ability of buyers to purchase diff...

QUARTER 1 MODULE 3 MARKET SUPPLY AND DEMAND, MARKET EQUILIBRIUM Objective: DIFFERENTIATE DEMAND AND SUPPLY DETERMINE THE FACTORS AFFECTING BOTH DEMAND AND SUPPLY GRAPHICALLY ILLUSTRATE DEMAND AND SUPPLY What is Demand? The willingness and ability of buyers to purchase different quantities of a good. At different prices. During a specific time period. (Household/Buyer's Side) The Market Where there is a demand for a good or service , there is a market. A market is where buyers and sellers meet. It is where transactions take place.  The Law of Demand As th price of a good rises, the quantity demanded of the good falls, and as the price of a good falls, the quantity demanded of the good rises, ceteris paribus  The Law of Demand ceteris paribus A Latin term meaning “all other things constant “ or “nothing else changes.” 4 WAYS TO REPRESENT THE LAW OF DEMAND In Words. As the price of a good rises, quantity demanded falls, and as price falls, quantity demanded rises, ceteris paribus.  4 WAYS TO REPRESENT THE LAW OF DEMAND 2. In Symbols.  4 WAYS TO REPRESENT THE LAW OF DEMAND 3. In a Demand Schedule.  4 WAYS TO REPRESENT THE LAW OF DEMAND 4. As a Demand Curve (downward-sloping) Change in Quantity Demanded versus a Change in Demand Demand speaks to the willingness and abilityof buyers to buy different quantities of a good at different prices. Quantity demanded speaks to the willingness and ability of buyers to buy a specifc quantity at a specific price Change in Quantity Demanded versus a Change in Demand Change in quantity demanded = A movement from one point to another point on the same demanded curve caused by a change in the price of the good Change in Quantity Demanded versus a Change in Demand Change in demand = Shift in demand curve Change in Quantity Demanded versus a Change in Demand Why Does Quantity Demanded Go Down as Price Goes Up? People substitute lower priced goods for higher priced goods. Law of Diminishing Marginal Utility, which states that for a given time period, the marginal utility or satisfaction gained by consuming equal successive units of a good will decline as the amount consumed increases. Factors that Cause the Demand Curve to Special Change INCOME Influences Determinants of Demand Taste and Size of Preferenc the Market e Prices of Related Goods Prices of Related Goods Prices of Related Goods Prices of Related Goods Why Does Quantity Demanded Go Down as Price Goes Up? People substitute lower priced goods for higher priced goods. Law of Diminishing Marginal Utility, which states that for a given time period, the marginal utility or satisfaction gained by consuming equal successive units of a good will decline as the amount consumed increases. Video Practical Application of the Concept of Change in Quantity Demanded We know that the prices of gasoline in the domestic market tends to change every now and then. Because of the price changes, private car owners tend to drive their cars less- which consequently use less gasoline -on days that gas prices are high. But on days when gas prices are low, car owners tend to utilize their cars more Practical Application of the Concept of Change in Demand On the other hand, because of the increase in the price of gasoline, the sale of cars has declined. This is because cars and gasoline are complimentary goods, so the increase in the price of gasoline may result in a decline in the sale of cars. Cars will not run without gasoline, so the higher the price of gasoline, the lower the demands for cars will be. What is Supply? The willingness and ability of sellers to purchase and offer to sell different quantities of a good. At different prices. During a specific time period. (Firms/Seller's side)  The Law of Supply As th price of a good rises, the quantity supplied of the good rises, and as the price of a good falls, the quantity supplied of the good falls, ceteris paribus 4 WAYS TO REPRESENT THE LAW OF SUPPLY In Words. As the price of a good rises, quantity supplied of the good rises, and as price of a good falls, quantity supplied of the good falls, ceteris paribus.  4 WAYS TO REPRESENT THE LAW OF SUPPLY 2. In Symbols.  4 WAYS TO REPRESENT THE LAW OF SUPPLY 3. In a Supply Schedule.  4 WAYS TO REPRESENT THE LAW OF SUPPLY 4. As a Supply Curve (upward-sloping) Change in Quantity Supplied versus Change in Supply Change in quantity supplied= A movement from one point to another point on the same supply curve caused by a change in the price of the good Change in Quantity Supplied versus Change in Supply Change in supply = shift in supply curve leftward or rightward Change in Quantity Supplied versus a Change in Supply Factors that Cause the Supply Curve to Special Prices of Change Relevant Influences Resources Determinants of Supply Governmen Technology t Policy Prices of Related Goods Why Most Supply Curves Are Upward Sloping? Law of Diminishing Marginal Returns, which states that as ever larger amounts of a variable input are combined with fixed inputs, eventually the marginal physical product of the variable input will decline. Video  Market is the interaction between buyers and sellers determined by price. Market Equilibrium generally pertains to a balance that exists when quantity demanded equals quantity supplied. is the general agreement of the buyer and the seller in the exchange of goods and services at a particular price and at a particular quantity. The intersection point of the supply and demand curves.  Market Disequilibrium Surplus (excess supply) A condition in which the quantity supplied is greater than the quantity demanded. Surpluses occur only at prices above equilibrium price. Shortage (excess demand) A condition in which the quantity demanded is greater than the quantity supplied. Shortages occur only at prices below equilibrium price. Factors that Affect Change in Demand and Supply  Price Controls When the market is experiencing a surplus, there is a possibility that producers will lose. When the market is encountering shortage, there is a possibility that consumers will be abused. What happens if disequilibrium (either due to surplus or shortage) in the market persists for a long time? If this happens, the government may intervene by imposing price controls.  Types of Price Controls Floor Price A legal minimum price imposed by the government on certain goods and services. Example Minimum wages Prices of agricultural product Market Equilibrium  Types of Price Controls Ceiling Price A legal maximum price imposed by the government on certain goods and services. Example Rental rates increase Interest rates of credit cards Market Equilibrium