Applied Economics (Readings 2) h.

Shifts of the Supply Curve

Basic Principles of Demand & Supply
Changes in Demand Vs Changes in Quantity
Demanded
2.1.Basic Principles of Demand and Supply
Changes in supply- refers to change in the
The Market-an interaction between buyers and
determinants of supply. Indicates a shift in the
sellers of trading or exchange
supply line
Three (3) types of markets
Changes in the quantity supplied- refers to
1. Goods market- the most common type of
changes in price and indicates a movement
market where we buy consumer goods
along the supply line
2. Labor market- where workers offer services
and look for jobs, and where employers hire
workers
Market Equilibrium-attained when quantity demand
3. Financial market- it includes stock market
where securities of corporations are traded equals quantity supplied (Qd=5Qs)
a. Demand-schedule of quantities of commodities
that the people are willing and able to buy at a Determining the market equilibrium by using the
given price level demand and supply function.
b. The Law of Demand
-states that as price increases, quantity demand Demand function for good X: Qd=60-P/2
decreases, considering other things equal or Supply function for good X : Qs=5+5P
constant (ceteris paribus) this shows an inverse
relationship Therefore: 60 – P/2 = 5 + 5P
Purchasing power – one’s capacity to buy with a Market Equilibrium is at P=10 and Q=55
given income
1.income effect – is felt when a change in price Application of the demand and supply in relation to
of a good changes consumers real income or Housing Shortage
purchasing power
2. substitution effect- is felt when a change in
100M- approximate Philippine population
the price of good changes demand due to
alternative consumption of substitute goods.
c. Non-Price Determinants of Demand Housing unit shortage – result of the rapid growth in
1. Income- I = D population , lack of govt. priority, expensive to build a
2. Population- Pop = D house, renting laws (by Se. Joey Lina) are strict and
3. Tastes and preferences- T&P = D tend to favor the renter.
4. Price expectations Pexp= D
5. Prices of related goods 2001-2011 - 3.92M units
Related goods 2030(expected)- 6.5M units
complementary products- goods that go
together Rent Control – another factor that affects prices. This is
substitute goods – goods that replace other equivalent to setting a price ceiling on the rent.
goods
Independent products- not related to other
goods
d. Shifts of the Demand Curve
Changes in Demand Vs Changes in Quantity
Demanded
2.3 Elasticities on Demand and Supply
Changes in demand- refers to change in the
determinants of demand. Indicates a shift in the
demand line Elasticity- the degree of response of a good to a change
Changes in the quantity demanded- refers to in a determinant. It is a measure of how much buyers
changes in price and indicates a movement and sellers respond to the changes in the market
along the demand line conditions.

e. Supply- schedule of quantities of commodities Coefficient of Elasticity-is the number obtained when
that the people are willing and able to sell at a the percentage change in demand is divided by the
given price level percentage change in the determinant
f. The Law of Supply
-states that as price increases, quantity supplied Degrees of Elasticity
also increases, considering other things equal or 1. Elastic
constant (ceteris paribus) this shows a direct 2. Inelastic
relationship 3. Unitary
g. Non-Price Determinants of Supply
Elasticity of Demand
1. Technology - ___ T = ___S
2. Cost of production- ___C = ___S
-responses to a change in price of the good itself, and
3. Number of sellers ___# =___S
4. Price expectations __ Pexp= ___S the price of related goods
5. Taxes and subsidies ___T= ___S
6. Prices of other goods
A. Price elasticity of demand-measures the
responsiveness of demand to a change in the price of a
good
1. arc elasticity - the value of elasticity is
computed by choosing two points in the demand
curve and comparing the percentage changes in
the quantity and the price of the two points
Pe={(Q2-Q1)/(Q2+Q1/2)} / {(P2-P1)/P2+P1/2)}
2. Point elasticity-measures the degree of
elasticity on a single point on the demand curve
Pe={(Q2-Q1)/Q1} / (P2-P1)/P1}
B. Income elasticity of demand-measures how the
quantity demanded changes as consumer
income changes
Ie= % change in Qd / % change in income
+ sign signifies a normal good(goods that
consumers tends to buy more when income
increases)
- sign signifies inferior good(goods that consumers
buy when income is low)
C. Cross elasticity of demand-measures how
quantity demanded changes as the price of
related goods changes.
+ sign signifies that the two goods are substitutes
- sign signifies that the two goods are
complements
Elasticity of Supply
-determines whether the supply curve is steep or flat
A. Steep- high degree of elasticity, ability to
change.Goods
That needs a long time to produce
B. Flat-inability to change in response to a change
in the price of the good.Goods that are easy to
produce
2.4 Market Structures- refers to the competitive
environment in which buyers and sellers operate
Significance: it will determine the amount of market
power or control the business owner will enjoy and the
opportunities for more profits
Competition- is the rivalry between the sellers in the
market
Market- a situation wherein the sellers compete to sell
and buyers compete to buy using their available
purchasing power
A.perfect competition-implies an ideal situation for
buyers and sellers
1.number and size of buyers and sellers-so many
2.Similarity or type of products-homogeneous
3.Degree of mobility of resources-perfect mobility
4.Entry and exit of firms-easy
5.Degree of knowledge of economic agents-perfect
6.Who determines the price- forces of demand &
supply
B.Imperfect competition- happens when one or more of
the assumptions of perfect competition will not be met.
A. Monopoly-when a single firm in the market
sells good that has no close substitute
 Single seller
 Producer enjoys economies of scales ( savings
from a large range of outputs)
 Product has no close substitute
 Down-ward sloping demand curve
 Seller is the price setter
B. Monopolistic competition
 Differentiated products(similar but not
identical)
 Easy entrance and exit in the market
 Down-ward sloping demand curve
 Non-price competition
C. Oligopoly
 Small number of sellers
 Action of each firm affects the other firms
 Cooperative behavior among members in
pricing
2.5 Supply-Demand and the Philippine Labor Market
 Labor Supply- also known as the labor force, refers
to the portion of the population, 15 yrs old and
above who are willing and able to work, actively
seeking for work but has not found a work yet and
those who are employed
A. Full time-those who work 40 hours and up
B. Part time workers-those who work less than 40
hours
Not included in the labor for: full-time housewife and
house husband,full time students, disabled and those
who wish to work but not looking for work.
 Philippine Population-100M by 2014 and a 2%
increase yearly. Official sensus is done by the
Philippine sensus
 Wages Situation
Setting of minimum wage by the govrt. Is a protection
for workers
 Labor migration (OFW) Minimum Wages in Philippines is expected to reach
579.00 PHP/day by the end of 2020, according to
2.6 Supply-Demand and the Philippine Economic Trading Economics global macro models and
Problems analysts expectations. In the long-term, the
 Philippine Peso and Foreign Currencies Philippines Daily Minimum Wages is projected to
trend around 590.00 PHP/day in 2021, according to
Imports vs. Exports our econometric models

Imports - goods that we buy from other countries
Exports -g oods that we sell to other countries
Exchange rate - the rate of buyiing and selling of our
currency
d. Taxes -are involuntary fees levied on individuals
or corporations and enforced by a government
entity—whether local, regional or national—in order
to finance government activities.

 Housing Shortage and Real Estate Boom

 Rent and Price Structure
 Saving and Investment
 Rent
 Minimum Wage
 Taxes
Economic Icon :

Alfred Marshall-is an economist who introduced

the concept of price elasticity of demand

2.2 Contemporary Economic Issues Facing the

Filipino Entrepreneur

a. Investment and interest rate

b. Rentals
c. Minimum wage
d. Taxes

a. Investment-n an economic sense, an investment

is the purchase of goods that are not consumed
today but are used in the future to create wealth.
In finance, an investment is a monetary asset
purchased with the idea that the asset will provide
income in the future or will later be sold at a higher
price for a profit

b. interest rate -is the amount a lender charges for

the use of assets expressed as a percentage of the
principal. The interest rate is typically noted on an
annual basis known as the annual percentage rate
(APR). The assets borrowed could include cash,
consumer goods, or large assets such as a vehicle
or building

b. Rentals -is the amount of money that you pay

when you rent something such as a car, property,
or piece of equipment

c. Minimum wage -the minimum amount of

remuneration that an employer is required to pay
wage earners for the work performed