Law on Demand and Supply PDF

MODULE 2: LAW ON DEMAND AND SUPPLY Market- is any place people come together to trade. Economists often say every market has two sides, buying side and the selling side. The buying side is associated with demand while the selling side can be referred as the supply side. DEMAND - The willingne...

MODULE 2: LAW ON DEMAND AND SUPPLY Market- is any place people come together to trade. Economists often say every market has two sides, buying side and the selling side. The buying side is associated with demand while the selling side can be referred as the supply side. DEMAND - The willingness and the ability of buyers to purchase different quantities of a good - At different prices - During a specific time period (per day, week, etc) 2024/9/18 LAW OF DEMAND -As the price of a good rise, the quantity demanded of the good falls, and as the price of the good falls, the quantity demanded of the good rises, ceteris paribus. -This means that the relationship of the price of the good and the quantity demanded are inversely related, ceteris paribus Quantity demanded is the number of units of a good that the individuals are willing and is able to buy at a particular price during a time period 2024/9/18 REPRESENTATION OF LAW OF DEMAND 1.In words. 2.In symbols. 3.In a demand schedule- a numerical representation of the law of demand 4.As a demand curve.- a graphical representation of law of demand showing the inverse relationship between the price and quantity demanded specified under the law of demand 2024/9/18 WHY DOES THE LAW OF DEMAND EXHIBIT AN INVERSE RELATIONSHIP? 1.People substitute lower priced goods for higher priced goods 2.Law of diminishing marginal utility- for a given time period, the marginal (additional) utility or satisfaction gained by consuming equal successive units of a good will decline at the amount consumed increases -This means that the more utility you receive from aunty of good the higher the price you are willing to pay while if gains less utility from aunty of good the lower the price you are willing to pay for it -Individuals obtain less utility from additional units of goods -Therefore, they will buy larger quantities of a good only at lower prices 2024/9/18 2024/9/18 INDIVIDUAL DEMAND CURVE VS. MARKET DEMAND CURVE Individual Demand curve- represents the price- quantity for a particular good for a single buyer Market Demand curve- represents the price- quantity combinations of a good of all buyers 2024/9/18 2024/9/18 CHANGE IN QUANTITY DEMAND VS. CHANGE IN DEMAND 1.Change in Quantity Demand- a movement from one point to another point on the same demand curve caused by a change in the price of the good 2.Change in Demand- shift in demand curve Increase in demand- represented by a rightward shift in the demand curve and means that individuals are willing to be able to buy more a good at each and every price. Decrease in Demand is represented by a leftward shift in the demand curve and means that individuals are willing to be able to buy less of a good at each and every price 2024/9/18 FACTORS THAT CAUSE DEMAND CURVE TO SHIFT 1. Income 2. Preferences 3. Prices of related goods 4. Number of buyers 5. Expectation of future prices 2024/9/18 INCOME -As person’s income changes that demand for a particular good may rise, fall or remain constant -NORMAL GOOD OR INFERIOR GOODS? NEUTRAL GOOD? 2024/9/18 2024/9/18  PREFERENCES - In favor= shifts rightward; away= shifts leftward 2024/9/18 PRICES OF RELATED GOODS -SUBSTITUTES OR COMPLEMENTS? -Substitutes- two goods that satisfy similar needs or desires. If two goods are substitutes, the demand for one rises as prices of the other rises (or the demand falls as the price of the other falls) - Complements - two goods that are used jointly in consumption. If two goods are complements, the demand for one rises as the prices of the other falls ( or the demand for one falls as the price of the other rises) 2024/9/18 2024/9/18 2024/9/18 * NUMBER OF BUYERS - more buyers- higher demand - fewer buyers, lower demand * EXPECTATIONS OF FUTURE PRICE - rise in future prices- higher demand and vice versa 2024/9/18 2024/9/18  SUPPLY 2024/9/18 SUPPLY - the willingness and the ability of seller to produce and offer to sell different quantities of a good at different prices during a specific time period 1.The willingness and the ability of sellers to produce and offer to sell different quantities of a good 2.At different prices 3.During a specific time period 2024/9/18 LAW OF SUPPLY - as the price of a good rises, the quantity supplies of the good rises and as the price of good falls, the quantity supplies of the good falls, ceteris paribus Price of a good and the quantity supplied of the good are directly related QUANTITY SUPPLIED- is the number of units that seller are willing and able to produce and offer to sell at a particular price UPWARD-SLOPING SUPPLY SURVE - is the graphical representation of the law of supply WHY IS IT MOSTLY UPWARD SLOPING? - because of law of diminishing marginal return - incentives of higher profits ( costs rise when more units of a good are produced) 2024/9/18  SUPPLY SCHEDULE - the numerical tabulation of the quantity supplies of a good at different prices. 2024/9/18 CHANGES IN SUPPLY MEAN SHIFTS IN SUPPLY CURVES - an increase in supply means the suppliers are willing and able to produce and offer to sell more of the good at all prices - decrease in supply of good means that sellers are willing and able to produce and offer to sell less of the good at all prices 2024/9/18 WHAT FACTORS CAUSE THE SUPPLY CURVE TO SHIFT? 1.Prices of relevant resources 2.Technology 3.Prices of other goods 4.Number of sellers 5.Expectation of future prices 6.Taxed and subsidies 7.Government restrictions 2024/9/18 * PRICES OF RELEVANT RESOURCES - if price of relevant resources increases, supplying of good would be costly thus making its supply to decrease 2024/9/18 TECHNOLOGY - body of skills and knowledge concerning the use of resources in production - Advancement of Technology (ability to produce more output with a fixed amount of resources, reducing per-unit production costs). - lower per unit cost increases profitability, providing more incentive, thus increasing quantity supplied 2024/9/18 *PRICES OF OTHER GOODS - Inverse relationship with supply of good 2024/9/18 * NUMBER OF SELLERS - more sellers, higher profit, increase supply, shift rightward -few sellers, less profit, decrease supply, shift leftward 2024/9/18 * EXPECTATION OF FUTURE PRICES - increase in future prices, less profit today more profit in the future, decrease supply, shift leftward - decrease in future prices, more profit today less profit in the future, increase supply, shift rightward 2024/9/18 TAXES AND SUBSIDIES - taxes increases per-unit costs, decreasing profit, decreasing supply, shift leftward - subsidies( monetary payment by government to a produced of a good or service) - have the opposite effect 2024/9/18 GOVERNMENT RESTRICTIONS 2024/9/18 2024/9/18 Thank you！