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Demand

DEMAND AND ■ The different quantities of goods that consumers are

willing and able to buy at different prices, all other
SUPPLY ANALYSIS things held at constant.

Law of Demand The Law of Demand

■ There is an INVERSE relationship between the price ■ The Substitution Effect

and quantity demanded, other things at constant
(ceteris paribus) ■ The Income Effect
■ The Law of Diminishing Marginal Utility
P↑Q↓
P↓Q↑

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Demand Curve
45

40

35

30

CHANGES IN DEMAND 25

Price
20

15
Shifters of the Demand Curve
10

0
0 1 2 3 4 5 6 7 8 9 10

Quantity

Demand Curve 5 Shifters of Demand

45

40

35 1. Change in Consumer Income

30 2. Change in Price of Other Goods
25 3. Change in Consumer Expectations
Price

20 4. Change in Number of Consumers

15 5. Change in Consumer Taste or Preference
10

0
0 1 2 3 4 5 6 7 8 9 10
■ The PRICE does NOT cause shift in the curve, but movement
Quantity along the curve.

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Changes in Income Price of Other Goods

■ Normal Goods Income and the demand for the ■ Substitute

product are directly related.
Income ↑ Demand ↑ Price of A ↑ Demand for B ↑
Income↓ Demand ↓ Price of A ↓ Demand for B ↓
■ Inferior Goods ■ Complements
Income ↑ Demand ↓ Income and the demand for the
product are inversely related. Price of A ↑ Demand for B ↓
Income ↓ Demand ↑ Price of A ↓ Demand for B ↑

Expectations Number of Consumers

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Taste or Preference

WHAT HAPPENS TO THE

DEMAND WHEN THE PRICE
DECREASES?
Nothing. DEMAND stays the same.
Quantity demanded increases.

Supply Law of Supply

■ The different quantities of goods that producers are ■ There is a DIRECT relationship between the
willing and able to sell at different prices, all other price and quantity supplied, other things at
things held at constant. constant
P↑Q↑
P↓Q↓

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Supply Curve
45

40

35

30

CHANGES IN SUPPLY 25

Price
20

15
Shifters of the Supply Curve
10

0
0 1 2 3 4 5 6 7 8 9 10

Quantity

Supply Curve 6 Shifters of Supply

45

40

35 1. Change in Technology
30 2. Change in Price of Relevant Resources
25 3. Change in Prices of Related Goods
Price

20 4. Change in Producer Expectation

15 5. Change in Number of Producers
10 6. Government Action: Taxes and Subsidies
5

0
0 1 2 3 4 5 6 7 8 9 10
■ The PRICE does NOT cause shift in the curve, but movement
Quantity along the curve.

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Technology Price of Relevant Resources

Price of Related Goods Producer Expectation

■ Substitute

Price of A ↓ Supply for B ↑

Price of A ↑ Supply for B ↓
■ Complement

Price of A ↑ Supply for B ↑

Price of A ↓ Supply for B ↓
Photo credit to the owner

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Number of Producers Government Involvement

■ Taxes and Subsidies

WHAT HAPPENS TO THE

SUPPLY WHEN THE PRICE DEMAND AND SUPPLY
DECREASES? FUNCTIONS
Nothing. SUPPLY stays the same.
Quantity Supplied decreases.

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Demand Function Practice Problem

Qd = a-bP Using Qd = 200-10P

Price Qty Demanded
1 1000 1. What is Qd if P is 5? 10? 15?
2 800 2. Construct a Demand Schedule
1. Find the b-variable
3 600 3. Graph the demand curve
2. Find the a-variable
4 400
5 200

Supply Function Practice Problem

Qs = m+nP Price Qty Supplied

Using Qs = -200+2P

1 200 1. What is Qs if P is 50? 200? 300?

■ Find the n-variable 2 400 2. Construct a Supply Schedule
■ Find the m-variable 3 600 3. Graph the supply curve
4 800
5 1000

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Practice Problem Review

Price Qty Supplied
■ Change in Demand VS Change in Quantity
50 ? Demanded
200 200
300 400
■ Change in Supply VS Change in Quantity
400 600 Supplied
500 800

Market Equilibrium

MARKET ■ Market clearing price

EQUILIBRIUM ■ It is the only place where quantity demanded

equals the quantity supplied at an exact price

Qd = Qs

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Surplus Shortage

■ At a given price, the amount of which Qs ■ At a given price, the amount by which Qd
exceeds Qd exceeds the Qs
■ Usually forces the price down ■ Usually forces the price up

Qd < Qs Qd > Qs

Disequilibrium Price Floors

■ The condition that exists in a market when the ■ Minimum legal price below which a product
plans of buyers do not match those of sellers cannot be sold
■ A temporary mismatch between Qs and Qd ■ Set above the equilibrium price
■ Price Controls

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Price Ceilings Assignment: Shoes

1. Price of slides (a substitute)

■ Maximum legal price above which a product increases
cannot be sold 2. A new factory producing shoes
opened in Marikina
■ To be binding (or have an effect on the market) 3. Price of shoes increase ($695 à
it is set below the equilibrium price $990)
4. Price of rubber, a key resource,
increased
5. A new Balenciaga flagship store
opened in Greenbelt

Assignment: Problem Solving

The market for concert tickets at MOA Arena, which

seats 20,000, is the following:

Price Quantity Demanded Quantity Supplied

Php 200 4,000 1,000
Php 400 2,000 2,000
Php 600 1,000 3,000
Php 800 500 4,000

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