BACC 201 – Basic Microeconomics

Part II. Basics of Demand and Supply

Demand - is the schedule of quantities of a good or service that people are

willing and are able to buy at different prices.
- consumer is the one who demands.

Price quantity demanded

Price quantity demanded

Ex. Pork

Note: There is an implicit assumption that there is no change in any other

Factors

Law of Demand
- other things equal, as price falls, the quantity demanded rises; and as
price rises, the quantity demanded falls.
- it is the inverse relationship between price and quantity demanded.

Demand Curve - a graphical representation of the relationship between the

price of a good or service and the quantity demanded for a given period of
time.

Market Demand – total demand of consumers for a certain product at a

given period of time.
Changes in Demand

✓ Changes in income
✓ Changes in prices of related goods and services
✓ Changes in tastes and preferences
✓ Change in price expectations
✓ Changes in population

SUPLY
Supply – is a schedule of quantities of a good or service that people are
willing and able to sell at various prices.

As price quantity supplied

As price quantity supplied

Law of Supply – all other factors being equal, as the price of a good
increases, the quantity of goods or services that suppliers offer will
increase, vice versa.

Supply Curve – is a graphic representation of the correlation between the

cost of a good or service and the quantity supplied for a given period.
- The supply curve is upload sloping, because, over time, supplies can choose
how much of their goods to produce and later bring to the market.

Market Supply - the total amount of an item producers are willing and able
to sell at different prices, over a given period of time.
Changes in Supply

✓ Changes in cost of production

✓ Technological advance
✓ Prices of other goods
✓ Changes in the number of suppliers
✓ Changes in taxes
✓ Expectation of future price changes
✓ Random causes

Supply and Demand: Opposite Sides of the Same Coin

✓ Economists are very fond of pointing out that the prospect of making a
lot of money will motivate people to work very hard.
✓ The higher the price of a good or service, the more that will be supplied.
✓ Similarly, everybody loves a bargain, so when there is half price sale,
eager shopper will line up outside the store hours before it opens.
✓ So the lower the price , the greater will be the quantity demanded.
✓ It can be demonstrated that people who would buy a good or service at a
very low price might themselves be willing to produce and sell that good
or service at a very high price.

Market Equilibrium – a market state where the supply in the market is

equal to the demand in the market

Equilibrium price – is the result of the forces of supply and demand.

✓ There will be no tendency for a price to change once it has reached its
equilibrium.
✓ However, if demand and supply (or both) changes, there will be a new equilibrium
price.
✓ A price is pushed towards equilibrium by the market forces of supply an demand.
In
other words, the price of a good or service is set by the law of supply and demand.
✓ As long as the government does not interfere with the private market, the forces
of
supply and demand set the prices of everything.
✓ No can repeal the law of supply and demand.
✓ At equilibrium everyone is happy. Quantity demanded equals quantity supplied,
and
the market is said to clear.