Modeling Supply And Demand PDF

MODELING SUPPLY AND DEMAND MARK ANTONY B. PERELLO Instructor  Modeling Supply and Demand Demand Supply It refers to the various The ability and willingness of sellers / producers to offer for sale...

MODELING SUPPLY AND DEMAND MARK ANTONY B. PERELLO Instructor  Modeling Supply and Demand Demand Supply It refers to the various The ability and willingness of sellers / producers to offer for sale various quantities of goods and services quantities of a product at a given place and that consumers are willing to buy time. in the market at all possible The various quantities of goods and prices, per unit of time, ceteris services that producers are willing to sell in paribus. the market at various alternative prices per unit of time, ceteris paribus. Law of Demand The law states that as the Law of Supply The law states that as the price of price is low, quantity demanded the products rises the quantity supplied (Qd) is high and as the price is will be greater and as the price of products high quantity demanded (Qd) is decreases the quantity supply will be low. lesser, ceteris paribus  Factors Affecting Demand Price of Related Goods The demand for a good can be affected by the prices of Taste and Preferences related goods, such as substitutes and complements. The manifestation of consumer’s Substitutes are goods that can be used in place of choices preferences and desires to buy a another good, while complements are goods that are products to satisfy their needs and used together. For example, if the price of coffee increases, the demand for tea (a substitute) might wants. increase. Price Expectation Natural calamities and other unforeseeable Income events can cause shortage or artificial shortage of As income increases the demand supplied goods. Because of the expectation that a for products and service also increases. shortage will occur, consumers tend to buy more Goods affected by income: products that can lead to panic buying. Normal goods – essential goods Income increase, Qd for Normal goods Number of Consumers increase It refers to the quantity or size of the Inferior goods – luxury goods population. If the population increases the Income increases, Qd for inferior goods demand for product also increase. decreases preencoded.png  Factors Affecting Supply Change in the cost of production Cost of Production Expectation of Price Fluctuation The value of the factors of production used in Fluctuation producing unit of commodity. In producing a commodity, materials, ingredients and The relative increase and decrease of the even workers incurred cost that can affect the quantity supplied. prices of commodities due to some factors. When the cost of production including salaries are When the sellers are expecting that the prices increasing and the prevailing market price of the commodities is low or cheap, the quantity supplied will be decreased. When the of his products would increase, he will sell more, cost of production is constant while the prevailing market price is adversely, if the producers are expecting that the high the quantity supplied will be increased. prices of his products would decrease, the tendency of the producers is to sell less. Government Regulations The price expectation creates artificial Government regulations, such as shortage because producers will have the tendency to taxes or subsidies, can impact the supply of hoard the commodities to maximize the high prices. goods by affecting production costs or making it profitable to produce. Technology The techniques, methods, processes used Number of Producers in making a product. When there are more producers or The more improved and advanced sellers, more products will be available in the technology used in producing goods, the more market and when there are less producers or supply of a particular good because it is produced sellers less products will be available in the easier, faster and cheaper. market. preencoded.png  Market Equilibrium Interaction Between Supply And Demand When the demand curve and supply curve interact, it will determine the market equilibrium. Interaction Between Supply And Demand Equilibrium Point The point where supply curve and the demand curve meets. Equilibrium quantity The output or product reached when quantity demand is equal to quantity supplied. Interaction Between Supply And Demand Equilibrium Price Also known as the market price. It refers to the price at which the quantity of good or services that consumers are willing to buy is equal to the amount of goods or services that the producers / sellers are willing to sell per unit of time, ceteris paribus. Abnormalities of the Equilibrium Price Surplus The amount by which the quantity supply exceeds the quantity demand. Occurs when price is greater the equilibrium price. Floor price The legislated minimum price that producers must receive for designated products. Abnormalities of the Equilibrium Price Shortage The amount by which the quantity demand exceeds the quantity supply. Occurs when price is lower that the equilibrium price. Ceiling price The legislated maximum price that consumers must pay for designated products.  Market Equilibrium How to solve for the market equilibrium? Equilibrium price and equilibrium quantity? Supply and Demand Function QS = -200 + 50P QD = 1000 – 25P QS = QD QS = -200 + 50P = QD = 1000 – 25P SOLVE FOR P AND Q  Market Equilibrium LET’S PRACTICE QD = 140 – 3P QS = -110 + 7P Using the following functions, find the market equilibrium, equilibrium quantity, surplus and shortage if the price is set as follows: a. 16 b. 18 c. 25 d. 30 e. 34 and graph the results.  Defining Market Demand MARKET DEMAND can be defined as the total quantity of a specific product or service that consumers in a particular market are willing and able to buy at a given price point during a specific time. It's a crucial metric for businesses, as it helps them understand the potential market size and the demand for their products or services. The concept of market demand is based on the premise that consumers have varying needs, desires, and purchasing power, and their willingness to buy a product is influenced by its price, availability, and perceived value. Price Sensitivity Consumer Preferences Market demand is highly sensitive to price Consumer preferences and tastes play a fluctuations. As prices rise, consumers tend to buy significant role in shaping market demand. If less, and as prices fall, they buy more. consumers favor a particular product or service, demand for it will likely be higher. Market Size Competition The size of the market, encompassing the Market demand can be influenced by number of potential buyers, also influences market the level of competition. If there are many demand. Larger markets generally have higher substitutes available for a product, demand demand, while smaller markets typically have lower for that product may be lower. demand. preencoded.png  Deriving Market Demand from Individual Data Understanding individual consumer behavior is crucial for accurately predicting market demand. By analyzing individual data, businesses can gain insights into the factors that drive customer purchasing decisions and tailor their strategies accordingly. This approach involves collecting and analyzing data from various sources, such as customer surveys, purchase history, and social media interactions. Data Collection 1 Collecting data from multiple sources, such as customer surveys, purchase history, and social media interactions, is 2 Data Analysis essential for understanding individual Analyzing the collected data using consumer behavior. statistical methods and machine Model Development learning algorithms to identify patterns 3 Developing predictive models based on the and trends in consumer behavior, analyzed data to forecast future market preferences, and purchasing decisions. demand. These models can incorporate various factors influencing consumer behavior, such as price, income, and product features. preencoded.png Forecasting Market Demand Trends Market demand forecasting is a critical aspect of business planning, as it helps anticipate future demand and make informed decisions about production, inventory, and pricing. By leveraging market demand models and incorporating relevant economic, consumer, and technological factors, businesses can generate more accurate forecasts. These forecasts can be used to: Optimize Production Adjust production levels to meet anticipated demand, minimizing waste and maximizing efficiency. Manage Inventory Ensure sufficient inventory to meet demand, avoiding stockouts and minimizing carrying costs. Set Pricing Strategies Determine optimal pricing strategies based on expected demand levels and price sensitivity. Develop Marketing Campaigns Target marketing efforts effectively to reach potential customers and stimulate demand. preencoded.png  Implications and Applications of Market Demand Analysis Understanding market demand has far-reaching implications for businesses of all sizes and across various industries. By analyzing market demand, businesses can: Identify Market Opportunities Gain Competitive Advantage Identify new markets or By understanding customer product segments with high needs and preferences better demand potential, allowing than competitors, businesses businesses to expand their can differentiate their offerings reach and capture new and gain a competitive edge in customers. the marketplace. Improve Decision Making Make informed decisions about product development, pricing, marketing, and resource allocation based on reliable market demand data. preencoded.png  Understanding Market Supply The Foundation of The Interplay of A Dynamic Process Market Equilibrium Producers and Market supply Consumers Market supply is represents the total Understanding not a static concept market supply helps us amount of a specific good analyze how producers but rather a dynamic or service that producers are willing and able to respond to changing process, constantly offer for sale at various market conditions, such adjusting to changes prices during a given as shifts in consumer in market factors. period. It's a fundamental demand, input costs, and government regulations. This adaptability is concept in microeconomics, playing This knowledge is essential for markets a crucial role in essential for businesses to to function efficiently make informed decisions determining market and allocate equilibrium, where about production levels, pricing, and resource resources effectively. supply and demand forces balance out. allocation. preencoded.png  Aggregating Individual Supply to Market Supply Summing Individual The Market Supply Factors Influencing Supply Curve Market Supply The market supply To derive market The market curve depicts the total supply, we aggregate the quantity of a good or supply curve is individual supply curves service that all producers influenced by the same of all producers in the are willing to supply at factors that affect different prices. This curve individual supply market. This process is typically upward-sloping, involves adding up the decisions, such as reflecting the law of supply, quantities supplied by which states that as prices production costs, each producer at rise, the quantity supplied technology, and generally increases. government policies, but various price levels. on a larger scale. preencoded.png  Applications and Practical Implications Business Strategy Government Global Trade Sustainability Policy Understanding The concept of Understanding Government market supply market supply is market supply is policymakers use relevant to helps essential for market supply environmental policymakers businesses to analysis to design sustainability. By assess the develop effective policies that analyzing the impact of pricing and promote economic supply of renewable growth, protect international production resources and the consumers, and trade on impact of strategies, regulate domestic environmental anticipate market industries. This markets. It also regulations on trends, and includes setting informs decisions supply, respond to taxes, subsidies, about trade policymakers can changes in and regulations agreements and develop policies that competitive that can influence promote sustainable import/export landscapes. supply levels. practices. restrictions. preencoded.png