MICROECONOMICS

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1ST SEMESTER
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Dr. Anastacia Joven

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 1. UNDERSTANDING ECONOMICS
KRISTOFFER LOIUE MUSA
WHY IS THERE A NEED FOR ECONOMICS?
SCARCITY
the demand for goods or services is greater than the availability
of the good or service. Therefore, scarcity can limit the choices
available to the consumers who ultimately make up the
economy.
Economics is derived from the Greek word 'Oikonomia'. Its
meaning is 'household management'.
2 MAIN BRANCHES OF ECONOMICS
MICROECONOMICS
Microeconomics is the study of economics at an
individual, group, or company level. Microeconomics
focuses on issues that affect individuals and companies.
MACROECONOMICS
Macroeconomics is the study of a national economy as a
whole. Macroeconomics focuses on issues that affect
nations and the world economy.
Microeconomics and macroeconomics are two fields of study
involving looking at behavior in certain areas of the economy
over a period of time.
Microeconomics is specific and smaller in scale, looking at the
behavior of consumers, the supply and demand equation in
individual markets, and the hiring and wage-setting practices of
individual companies.
Macroeconomics has a broader focus, such as the impact of
fiscal policy, big picture causes of unemployment or inflation,
and how government actions impact nationwide economic
growth.
Microeconomics and macroeconomics are two fields of study
involving looking at behavior in certain areas of the economy
over a period of time.
Microeconomics is specific and smaller in scale, looking at the
behavior of consumers, the supply and demand equation in
individual markets, and the hiring and wage-setting practices of
individual companies.
Macroeconomics has a broader focus, such as the impact of
fiscal policy, big picture causes of unemployment or inflation,
and how government actions impact nationwide economic
growth.
WHAT IS AN ECONOMIC THEORY?
An economic theory is a set of ideas and principles that outline
how different economies function. Depending on their particular
role, an economist may employ theories for different purposes.
EXAMPLES OF ECONOMIC THEORIES
There are 4 common examples of an economic theory and they
are the following:
• supply side economics
 • new classical economics
• monetarism
• Keynesian economics
3 STEPS IN THE CONSTRUCTION OF AN ECONOMIC
THEORY
Three steps that economists take to discover how the economic
world works are observation and measurement; model building;
and, testing models.
Observation and Measurement
Model Building
Model Testing
2.FUNCTIONS OF ECONOMIC THEORY
CHARLES ANGEL SEATRIZ
Economic Theory
An economic theory is a set of ideas and principles that outline
how different economies function. Depending on their particular
role, an economist may employ theories for different purposes.
Some theories aim to describe particular economic
phenomena, such as inflation or supply and demand, and why
they occur. Economic theories may provide a framework of
thought that allows economists to analyze, interpret and predict
the behavior of financial markets, industries and governments.
FUNCTIONS OF ECONOMIC THEORIES
Economic theories try to explain economic phenomena, to
interpret why and how the economy behaves and what is the
best to solution, how to influence or to solve the economic
phenomena.
They are comprehensive system of assumptions, hypotheses,
definitions and instructions what should be done in a certain
economic situation. In principle, the approach to economic
theory is divided into positive and normative.
Economic Theory provides an outlet for research in all areas of
economics based on rigorous theoretical reasoning and on
topics in mathematics that are supported by the analysis of
economic problems. Published articles contribute to the
understanding and solution of substantive economic problems.
Economic Theory publishes surveys for particular areas of
research that clearly set forth the basic underlying concepts
and ideas, the essential technical apparatuses, and the central
open questions.
The purpose of an economic theory is to attempt to describe
and explain how economies work. This involves analyzing,
defining, and describing various economic forces and variables
that affect economies.
Economic theories can be used to better understand how
economies function and also to make predictions about how
they might behave in the future.
ECONOMIC THEORIES
• SUPLY AND DEMAND
• CLASSICAL ECONOMICS
• KEYNESIAN ECONOMICS
• MALTHUSIAN ECONOMICS
• MARXISM
• LAISSEZ-FAIRE CAPITALISM
• MARKET SOCIALISM
• MONETARISM
• TRAGEDY OF COMMONS
• NEW-GROWTH THEORY
3. THE THREE FUNDAMENTAL AND
INTERDEPENDENT ECONOMIC THEORIES
SARAH LAURON

What Is Economics?
Economics is a social science that focuses on the production,
distribution, and consumption of goods and services, and
analyzes the choices that individuals, businesses,
governments, and nations make to allocate resources.
The study of the choices people make to satisfy their wants
and needs with a limited supply of resources.
What is Economic InTerdependence?
“Economic interdependence refers to the relationship between
two individuals, groups, sects, businesses, regions, or countries
where each of them is dependent over the other for the supply
of necessary goods and services.”
The concept of Economic Interdependence mostly applies
where each party specializes in the production of a specific
good or the provision of a specific service. And the exchange of
those services is necessary to fulfill all the needs of both
parties.
Example
One of the best and easiest examples of economic
interdependence is international trade.
THE THREE FUNDAMENTAL ECONOMIC PROBLEMS
SCARCITY
Scarcity is one of the key concepts of economics. It means
that the demand for a good or service is greater than the
availability of the good or service.
CHOICE
Choice refers to the ability of a consumer or producer to
decide which good, service or resource to purchase or
provide from a range of possible options.
An economic problem means the problem of making
choices occurs because of the scarcity of resources. It
arises because people have unlimited wants, but the
means to satisfy them are limited.
OPPORTUNITY COST
Opportunity cost is commonly defined as the next best
alternative. Also, known as the alternative cost, it is the
loss of gain which could have been gained if another
alternative was chosen. It can also be explained as the loss
of benefit due to a change in choice
Why is opportunity cost important in economics?
Opportunity cost helps individuals and businesses make
more informed decisions by considering all available
options before choosing one. By doing this, they can
determine whether the benefits of their chosen option
outweigh its costs or if there are better alternatives
available.
Basic Economic Questions, which arise from the central
problem of scarcity of resources are:
What to produce?
(What goods and services should be produced and what
quantities)
How to produce?
(How should things be produced)
For whom to produce?
( Who are you going to produce these things for)
4. TYPES OF ECONOMIC SYSTEM
KEFLEEN R. ARCONADO

An economic system is a means by which societies or

governments organize and distribute available resources,
services, and goods across a geographic region or country.
Economic systems regulate the factors of production, including
land, capital, labor, and physical resources. An economic
system encompasses many institutions, agencies, entities,
decision-making processes, and patterns of consumption that
comprise the economic structure of a given community.
Economic System helps us answer 3 main questions such as:
What goods and services should be produce?
How should we produce it?
For whom should they be produced?
The answer to these economic questions based on social
values and goals, in other words what does society wants and
what is it looking to achieve?
•The Different Types of Economic System
1.Traditional Economic System
The traditional economic system is based on goods, services,
and work, all of which follow certain established trends. It relies
a lot on people, and there is very little division of labor or
specialization.
Some parts of the world still function with a traditional economic
system. It is commonly found in rural settings in second and
third world nations, where economic activities are
predominantly farming or other traditional income-generating
activities.
There are usually very few resources to share in communities
with traditional economic systems. Either few resources occur
naturally in the region or access to them is restricted in some
way. Thus, the traditional system, unlike the other three, lacks
the potential to generate a surplus. Nevertheless, precisely
because of its primitive nature, the traditional economic system
is highly sustainable.
A traditional economy is based on customs, traditions, and
cultural practices that have been passed down through
generations. Economic activities are often subsistence-
oriented, focused on meeting basic needs such as food,
shelter, and clothing. Traditional economies rely on barter and
simple exchange mechanisms rather than formal markets. They
are typically found in rural and less developed regions where
traditional ways of life and livelihoods are still prevalent.
2. Free-market Economic System
Advocated by the economist Adam Smith. The free market
economy operates on its own through competition and
consumer purchasing without government interference. This
concept is known as the “LAISSEZ FAIRE” economy.
Firms produce goods and services that consumers need and
wants the most, consumers will buy these products in order to
maximize their own utility. They need to produce good quality to
make it in the market place and have a favorable profit
By operating according to their own self interest, they meet the
needs of the society through market interaction or also known
as the concept of the invisible hand. It is a metaphor for the
unseen forces that move the free market economy.
The natural market forces that allow market to control itself, if
something goes wrong the invisible hand fixes it and puts the
market back on track. Remember that the key to a pure free
market economy is no government interreference. Its
consumers and firms interacting freely and maximizing their
incentives.
3. Centrally Planned Economic System
Advocated by the economist Karl Marx. This is where the
market operates under the centralized planning of the
government with all decisions under the government control.
A command economy will exist in a dictatorship, where in one
central figure or a small committee make all political and
economic decision for the society.
The government owns and controls all resources and
production. The government therefore decides social needs.
As a result they will chose how to allocate scarce resources in
order to optimize the general welfare of the citizens.
4.Mixed Economic System
Advocated by the economist John Maynard Keynes. Where the
free market also known as the private sector and the
government also known as the public sector work together in
order to meet social needs.
Through free enterprise consumers and firms mutually benefit
in the markets. The free market system works as is, but the
moment the markets fails in some way the government
intervenes in order to fix the failure.
•Imporatnce
Growth in an economy is measured by a continual increase in
the production of goods and services. As a result of economic
growth, the standard of living improves, meaning people are
making more money, the population is able to grow, and
education levels rise.
Countries that lack economic growth tend to be inefficient with
their resources and lack a feeling of optimism about the future.
Without adequate economic growth these countries face
problems with their security as well.
5.THE CIRCULAR FLOW OF ECONOMIC ACTIVITY
JOELO RODRIGUEZ

THE CIRCULAR FLOW OF ECONOMIC ACTIVITY

What Is the Circular Flow Model in Economics?

The circular flow model is an economic model that shows the flow of money
through the economy. The most common form of this model shows the circular flow
of income between the household sector and the business sector. Between the two
are the product market and the resource market.
Households purchase goods and services, which businesses provide
through the product market. Businesses, meanwhile, need resources in order to
produce goods and services. Members of households provide labor to businesses
through the resource market. In turn, businesses convert those resources into goods
and services.
4 Factors of Production
1. Labor- These are workers. The factor payment for labor is referred to as “wages.”
2. Land- This includes land that is rented or purchased, as well as other components like
natural resources and raw materials. The factor payment for land is referred to as “rent.”

3. Capital- This is money used to buy the tools that labor implements to convert land (i.e.,
natural resources) into goods. The factor payment for capital is called “interest.”
4. Entrepreneurs- These are the people who put the other three resources together to
create a successful business. The factor payment for entrepreneurs is called “profit.”

How Do Costs, Revenue, and Consumer Spending Relate to the Circular Flow
Model?
In the simple circular flow model of the free market, money flows in the opposite
direction.
Here’s how it works:
• When households need a good or service, their money flows to the product
market in a process called consumer spending.

• To provide goods and services to households, the product market purchases

them from businesses, generating revenue.

• To make goods and services for the product market, businesses purchase
resources from the resource market, generating cost.

• Finally, to generate resources businesses need to create goods, the resource

market pays for other resources—namely, workers and land. This
generates income for labor and landholders.

This is the basic circular flow diagram.

Consumer spending —> Revenue —> Cost —> Income

“As consumers, we have so much power to change the world by just being
careful in what we buy.”
-Emma Watson
6. DEMAND SCHEDULE
SAMANTHA ALCANTARA
-a demand schedule is a table that shows the quantity
demanded of a good or service at different price levels.
• Demand schedule is referred to as a tabular
representation or a tabular statement that shows various
quantities of commodities that are demanded at different
price levels at a specific time period.
• A demand schedule will show the exact number of units of
goods and services that will be bought at each price.
Demand schedule shows the relationship between the
price of a commodity and the quantity demanded.
• Law of Demand states that as the price of a commodity
falls, the corresponding demand increases and with rise in
price, the demand of the commodity decreases. Therefore,
there is an inverse relationship between the price of a
commodity and its demand.
Example 2
Assume someone is shopping for a water bottle and they find a
$10 water bottle they like. Because of the price, they decide to
buy one for each member of their household. As the price
increases, they might decide to purchase fewer water bottles.

For example, once the price reaches $20, they may decide to
only

Number of bottles purchased (by

Price per water bottle
household)

$10 4

$15 3

$20 2

$25 1

purchase one for themselves and one for their spouse, but
none for their children. When the price reaches $25, they only
buy one for themselves.The water bottle company may use this
information to determine how they should price their bottles by
creating a demand schedule that looks like this:
Example 3
An airline prepares a demand schedule for their airline tickets.
They include the price of the tickets, and they separate the
demand depending on whether it's a domestic or international
flight. By arranging their demand schedule this way they can
assess how the changes in their prices affect both of their
markets.
This is their demand schedule:

Price per Domestic International

Total demand
ticket demand demand

$500 201 799 1,000

$540 594 395 989

$600 465 409 874

$650 637 219 856

$700 531 276 807

$800 497 298 795

IMPORTANCE OF DEMAND SCHEDULE

• Determine which price is most appealing: For marketing
teams or other administration, demand schedules may be
useful to help determine the price to sell their products or
services. The curve of a demand schedule can show at
what price the buyer purchases fewer of the item, reducing
profits.
• Calculate the elasticity of the product: Elasticity is the
relationship between the price of a product and how much
of the product the market demands. If the price
 significantly affects the quantity demanded, the elasticity is
high, and if it does not the product is inelastic.
• Predict the potential demanded quantity: Demand
schedules can be used to predict the amount of material
necessary based on the price of a product. If the demand
schedule predicts that the quantity demanded rises as the
price decreases, the company may need more supplies to
produce more products.
• Identify other determinants of demand: Demand
schedules may be used to identify if other determinants of
demand are affecting the quantity demanded. Other
determinants can include trends, incomes, competition
and expectations.
7. LAW OF DEMAND
LESLIE ANNE ULLERO

Introduction:
The Law of Demand is a fundamental economic principle
that describes the relationship between the price of a good or
service and the quantity demanded by consumers. It plays a
crucial role in understanding consumer behavior in the market.
Body:
1. Definition:
The Law of Demand states that, all else being equal, as the
price of a good or service rises, the quantity demanded for that
good or service decreases, and vice versa. This means there is
an inverse relationship between price and quantity demanded.
2. Inverse Relationship:
The Law of Demand establishes a negative correlation
between price and quantity demanded, assuming that other
factors remain constant. This is visually represented by a
downward-sloping demand curve.
3. Assumptions:
- Ceteris Paribus: The Law of Demand assumes that
all other factors influencing demand remain constant,
including consumer income, preferences, and prices
of substitute or complementary goods.
- Rationality of Consumers: It is assumed that
consumers act rationally and seek to maximize their
utility, aiming for the most satisfaction from their
spending.
- Diminishing Marginal Utility: This concept
suggests that as a consumer consumes more units of
 a good, the additional satisfaction derived from each
additional unit decreases, contributing to the
downward-sloping demand curve.
4. Real-world Applications:
- Pricing Strategies: Businesses use the Law of
Demand to set prices for their products or services,
aiming to find the equilibrium price that maximizes
both profit and consumer satisfaction.
- Government Policies: Governments implement
policies like taxation, subsidies, and price controls,
which can influence consumer behavior and market
outcomes.
Conclusion:
The Law of Demand is a fundamental concept in economics,
offering valuable insights into consumer behavior and market
dynamics. Understanding this principle enables businesses and
policymakers to make informed decisions regarding pricing,
production, and economic policies. It is a cornerstone of
economic theory and practice
8. CHANGE IN QUANTITY DEMANDED vs. CHANGE
IN DEMAND
CATHLEEN JEALLE COSME

A. Change in QUANTITY DEMANDED

-refers to a movement along a fixed demand curve that’s
caused by a change in price. Prices can change in many
reasons, these are: technology, consumer preference,
weather conditions and so on.
A demand curve represents the relationship between the
price of a good or service and the quantity demanded for a
given period of time.
PRICE

QUANTITY

B. Change in DEMAND
refers to a shift in the demand curve that is caused by one
of the shifts: income, preferences, changes in the price of
goods and so on.
 PRICE

D1

QUANTITY

Example:
CHANGE IN QUANTITY DEMANDED
1) Market for Soda
2) Market for Iphone 15

REASONS:
• Price of the Product
• The Consumer's Income
• The Price of Related Goods
• The Tastes and Preferences of Consumers
• The Consumer's Expectations
• The Number of Consumers in the Market
CHANGE IN DEMAND
1) Market for Soda

2) Market for a Toyota Vios (automatic version)

REASONS:
• Price of the Product
• The Consumer's Income
• The Price of Related Goods
• The Tastes and Preferences of Consumers
• The Consumer's Expectations
• The Number of Consumers in the Market
SIDE BY SIDE COMPARISON

Reference:
Change in Demand vs. Change in Quantity Demanded.
Youtube, 14 January, 2021.
https://youtu.be/9jLlOPqHxLs?si=xCzyFxmRWI7EBavF
9. CETERIS PARIBUS ASSUMPTION
MARJORIE RAPACON

The “ceteris paribus” assumption is a Latin phrase that

means “all other things are being equal” or “holding other
things constant.”
It allows researchers to study the impact of a specific
variable without the interference of external factors.
Importance of Ceteris Paribus Assumption
The need to isolate specific variables in the context of the
ceteris paribus assumption arises from the complexity of
real-world situations.
Without isolating variables, it becomes challenging to
attribute changes to a specific factor.
In essence, isolating specific variables through the ceteris
paribus assumption is a fundamental method for gaining
insight, making predictions, and drawing meaningful
conclusions in a various fields of study.
Limitations of Ceteris Paribus Assumption
 It is a simplification of reality.
 It can be difficult to isolate the effect of any variables.
 It can lead to inaccurate predictions if other variables
change unexpectedly.
Example of Limitations of Ceteris Paribus
In 2008, many economists predicted that the housing market
crash would lead to a mild recession. However, the recession
turned out to be much more severe than predicted. This is
because economists did not adequately account for the
interconnectedness of the financial system and the global
economy.
In 2016, many economists predicted that Brexit would lead to a
significantly decline in the British economy. However, the British
economy has performed better than expected. This is because
economists did not sufficiently taken account the resilience of
the British economy and the fact that British government has
taken steps to mitigate the negative effects of Brexit.
Conclusion:
In practice, the ceteris paribus assumption should be used
cautiously, considering its applicability to specific research
questions and contexts. Researchers often combine
ceteris paribus analysis with real-world validation to
enhance the reliability and relevance of their findings.
Despite its limitations, it remains a valuable tool for gaining
insights, testing hypotheses, and making informed
decisions across a wide range of disciplines.
10. CHANGES IN DEMAND: SHIFT IN THE DEMAND
CURVE
KAYECEE SILVANIA

Shift in Demand Meaning

• Shift in demand represents a change in the quantity of a
product or service that consumers seek at any price point,
caused or influenced by a change in economic factors
other than price.
• The demand curve shifts when the quantity of a product or
service demanded at each price level changes. If the
quantity demanded at each price level increases, the
demand curve shifts rightward. Inversely, if the quantity
demanded at each price level decreases, the demand
curve will shift leftward. Thus, shifts in the demand curve
reflect changes in quantities that consumers are seeking
at every price level.
Types of shifts in demand curve
As shifts in demand are characterized by a change in the
quantity of a product or service demanded by consumers in the
market, when visualized on a graph, these shifts will be
reflected by the demand curve moving either up or down with
respect to quantity. They are referred to as leftward and
rightward shifts respectively.
Rightward shift in demand curve
• If the quantity demanded at each price level increases, the
new points of quantity will move rightward on the graph to
reflect an increase. This means that the entire demand
curve will shift rightward,
 • The curve shifts to the right if the determinant causes
demand to increase. This means more of the good or
service are demanded even though there's no change in
price. When the economy is booming, buyers' incomes will
rise. They'll buy more of everything, even though the price
hasn't changed.
For example, consider the following demand and supply chart
for a product. If originally at price P, quantity Q was demanded,
once the demand curve shifts to the right at the same price P,
more quantity (Q1) will be demanded.

Leftward shift in demand curve

• If the quantity demanded at each price level decreases,
the new points of quantity will move leftward on the graph,
hence shifting the demand curve leftward.
• The demand curve shifts to the left if the determinant
causes demand to drop. That means less of the good or
service is demanded. That happens during a recession
when buyers' incomes drop. They will buy less of
everything, even though the price is the same.
For example, consider the following demand and supply chart
for a product. If originally at price P, quantity Q was demanded,
once the demand curve shifts to the left at the same price P,
lower quantity Q1 will be demanded.
11.SUPPLY SCHEDULE AND SUPPLY CURVE
JACK DANIEL BALBUENA
Introduction
The concept of supply is a fundamental principle in economics
that refers to the quantity of a good or service that producers
are willing and able to sell in each time at various prices. To
analyze and understand how supply behaves in different
market conditions, economists use two important tools: the
supply schedule and the supply curve.
I. Supply Schedule:
Definition:
A supply schedule is a tabular representation of the quantity of
a good or service that producers are willing to supply at
different prices, holding all other factors constant.
Components:
1. Price: The various prices at which the good or service is
offered in the market.
2. Quantity Supplied: The corresponding quantity that
producers are willing to supply at each price level.
Think of it like a price list for a product. It shows how much of a
product a seller is willing to offer at different prices.
- For example, if the price of apples is $1, the seller might be
willing to sell 100 pounds. If the price is $2, they might be
willing to sell 200 pounds, and so on.
- This illustrates the positive relationship between price and
quantity supplied, known as the Law of Supply.
II. Supply Curve:
Definition:
A supply curve is a graphical representation of the relationship
between the price of a good or service and the quantity that
producers are willing to supply, holding all other factors
constant.
Imagine plotting the information from the supply schedule on a
graph.
The graph will show a line going upwards. This line represents
that as the price of the product goes up, the quantity that sellers
are willing to sell also goes up.
Characteristics
1. Upward Sloping: The supply curve slopes upwards from
left to right, indicating the positive relationship between
price and quantity supplied.
2. Shifts: Changes in factors other than price, such as input
costs or technology, can cause the entire supply curve to
shift.

CONCLUSION
Understanding the supply schedule and supply curve is
crucial for economists and market participants to analyze
how changes in price affect the quantity supplied in a
market. By studying these concepts, we gain valuable
insights into the behavior of producers and how they
respond to shifts in market conditions.
12.LAW OF SUPPLY
DESIREI IMPELIDO

The law of supply is a fundamental economic principle

that describes the relationship between the price of a good or
service and the quantity that producers are willing to supply in a
given time period.

The law of supply is based on the observation that, all else

being equal:

As Price Increases: The quantity supplied by producers

increases.
As Price Decreases: The quantity supplied by producers
decreases.

The law of supply states that, all else being equal, an

increase in the price of a good or service will lead to an
increase in the quantity supplied, and vice versa. This reflects
the positive relationship between price and quantity supplied.

Several factors affect the law of supply:

Price of Inputs:
If the cost of production materials or labor increases,
producers are likely to supply less of a good at a given price,
influencing the supply curve.

Technological Changes:
Advances in technology can lower production costs,
leading to an increase in the quantity supplied even at the
same price.

Number of Sellers:
 An increase in the number of producers in the market can
contribute to an increase in the overall quantity supplied.
Expectations of Future Prices: If suppliers expect prices to rise
in the future, they may reduce current supply to take advantage
of higher future profits.

Government Policies:
Regulations, taxes, and subsidies can impact the cost of
production and influence the quantity that producers are willing
to supply.
13. CHANGES IN QUANTITY
KRISTEL KEITH DULDULAO

Changes in Quantity Supplied (Movement along the Supply

Curve):
• Changes in quantity supplied refer to adjustments in the
amount of a specific good or service that producers are
willing and able to supply in response to changes in the
market price while keeping all other factors constant.
• When the price of a good or service changes, and assuming
that other factors like production costs, technology, and
government policies remain unchanged, producers will
respond by supplying a different quantity of that good or
service.
• An increase in the market price generally leads to an
increase in the quantity supplied, and a decrease in the
market price typically results in a decrease in the quantity
supplied. This relationship is described by the law of supply,
which states that there is a direct, positive relationship
between price and quantity supplied.

In this case, Farmer Jones who grows apples for sale. In this
schedule, price per apple is located in the first column and
quantity of apples in the second column. Take note of the
correlation between the price and the amount (apple) per unit
that the farmer is able and willing to supply. The farmer is
prepared to sell a greater quantity of apples since he is aware
that he will make more money if the price per apple in the
timetable is $2, which is a rather pricey apple. Nevertheless, the
vendor is prepared to supply fewer and fewer apples as the price
begins to decline. A graph can be used to visually show this
relationship. Plot the points from the schedule on the y-axis
representing the product price and the x-axis representing the
quantity of apples the vendor is ready to give.

Supply Curve for Apples

Take note of how quantity and pricing relate to each other.
The farmer is willing to give more apples as the price goes up.
The farmer is ready to give away fewer apples as the price
drops. When the price is $0.25 per apple, he is actually
unwilling to provide any. Quantity and price fluctuate in tandem;
they can both rise or fall. The supply curve slopes upward due
to the direct link between the two variables. If all other elements
stay the same, a price change for a particular product will result
in a shift up or down the curve to the new product pricing and
quantities.

Let’s confirm this conclusion. Begin at point A. If the

farmer is offered a price higher than $0, say $1 per apple, then
it will cause a movement up along the curve to the new price at
point B where the quantity supplied is 3 apples. Quantity
supplied rises. If the farmer had been receiving $2 per apple
and the price falls to $1, then it will cause a movement down
along the curve to the new prices where the quantity is three
apples. Quantity supplied falls. We call this action a movement
along a supply curve caused by a change in the product’s price.

When a product's price varies and affects the quantity a

seller offers for sale, there are movements along the supply
curve. The aforementioned case illustrates how the law of
supply operates. The amount supplied decreases when the
price of the product rises, and the quantity supplied increases
when the price of the product falls. What's meant by a
movement along the curve is this. We only move along the
curve in the same way as the price changes from one point to
the next, providing nothing else changes, since the producer is
willing to supply a different amount as the price changes.
To help you remember this relationship for supply and
differentiate it from the relationship for demand, refer to the
image below.
In economic terminology, as price goes up, the quantity
supplied rises and vice versa. Again, there is a direct
relationship between the two variables (price and quantity) as
stated by the law of supply, which is illustrated by a movement
up or down along a supply curve. Remember, no other factor
that might influence the seller is allowed to be considered, only
a change in the product’s own price.
Shifts in Supply
Price is only one of several factors that influence the
willingness and ability of suppliers—sellers and producers—to
offer products to the market. In the real world, we know many
factors are constantly changing. What if the farmer's fertilizer
becomes more expensive, or what if the farmer has to pay
workers more? What if new technology is developed that
makes apple picking much more efficient? Or what if the farmer
faces more competition from other growers? In these cases, we
can't simply move along the curve because sellers may not be
willing to supply the same amount of apples at the same prices
if any of these events occur. Let's consider the effect of a
change in a non-price factor such as the cost of fertilizer. This
means we need to modify the supply schedule while keeping
the same prices. Only one thing can change at a time
If we plot these new quantity and price numbers, then we
are going to create a new supply curve. The quantity numbers
are different, even though the price column did not change.
This is a new relationship between price and quantity producing
a new supply curve. The change in the position of the new
curve relative to the old one is what we term a shift of the
curve. A new relationship between price and quantity requires a
new supply curve. The new curve represents as shift in supply,
caused by a change in something other than the price of the
good itself. The seller rethinks the price-quantity decisions.
Changes in Production Costs Shift the Supply Curve
As you can see in the graph a change in production costs
caused a shift in the supply curve.
As production costs increase, the supply curve shifts left.
This is what happened when fertilizer became more costly. As
production costs decrease, the supply curve shifts right

In this lesson, you learned in Movements Along a Supply

Curve an increase in a product price causes a movement up
along a supply curve, assuming ceteris paribus. In Ceteris
Paribus, you learned that we consider the change in one
variable at a time; either price or some other factor of supply. In
Shifts in Supply, you learned that changes in sellers’ willingness
and ability, other than product price, affect supply causing a
shift of the supply curve, assuming the price is held constant.
14. CHANGE IN SUPPLY AND SHIFTS OF THE
SUPPLY CURVE: EXPLORING ECONOMIC
DYNAMICS
DAN ISAAC SACAYANAN
Introduction
In economics, supply refers to the quantity of a product or
service that producers are willing and able to offer for sale at
different prices. Understanding changes in supply and shifts of
the supply curve is crucial for businesses, policymakers, and
economists alike. This report delves into the concepts of
change in supply and shifts of the supply curve, exploring their
causes, effects, and implications for markets.

**Change in Supply**

1. **Definition**: A change in supply refers to a change in the

quantity of a product or service producers are willing and able
to offer at different price levels. It can result from various factors
that influence production and the willingness to sell.

2. **Causes of Change in Supply**:

- **Input Prices**: Changes in the prices of inputs (e.g., raw
materials, labor) can impact production costs and,
consequently, the quantity supplied.
- **Technology**: Technological advancements can increase
production efficiency, leading to an increase in supply.
- **Government Policies**: Regulations, taxes, and subsidies
can affect production costs and incentives for producers.
 - **Natural Disasters**: Events like floods or droughts can
disrupt the supply chain and reduce the quantity supplied.

**Shifts of the Supply Curve**

1. **Definition**: A shift of the supply curve occurs when the

entire supply curve moves to the left (decrease in supply) or
right (increase in supply) due to changes in factors other than
price.

2. **Causes of Shifts in the Supply Curve**:

- **Changes in Technology**: Technological advancements
can increase supply by reducing production costs.
- **Government Intervention**: Policies like subsidies or taxes
can directly affect supply.
- **Input Costs**: Changes in the prices of inputs can impact
the willingness to produce.
- **Expectations**: If producers expect future prices to rise,
they may reduce supply in the present to sell more at higher
prices later.
- **Number of Producers**: An increase in the number of
producers can expand supply, while a decrease can reduce it.

**Effects and Implications**

1. **Price and Quantity**: Changes in supply affect both the

equilibrium price and quantity in a market. An increase in
supply usually leads to a lower equilibrium price and a higher
quantity traded, and vice versa.
2. **Consumer and Producer Surplus**: Shifts in supply can
affect consumer and producer surplus, influencing the
economic welfare of buyers and sellers.

3. **Market Dynamics**: Understanding supply changes is vital

for anticipating and managing market dynamics, including
periods of oversupply or scarcity.

**Conclusion**

Change in supply and shifts of the supply curve are

fundamental concepts in economics that impact market
dynamics, prices, and resource allocation. Understanding the
causes and effects of these shifts is essential for businesses,
policymakers, and economists to make informed decisions and
adapt to changing market conditions. As the global economy
continues to evolve, grasping the intricacies of supply dynamics
remains a critical aspect of economic literacy and effective
decision-making.
15. ELASTICITY OF DEMAND
JOHN MARK ISIDRO

Introduction:
Elasticity of demand is a crucial economic concept that
measures how responsive the quantity demanded of a good or
service is to a change in price. This report delves into the
various aspects of elasticity, examining its types, factors
influencing it, and its practical implications.

**1. Types of Elasticity:**

a. **Price Elasticity of Demand (PED):** Analyzing how much
quantity demanded changes in response to a change in price.
b. **Cross-Price Elasticity of Demand (XED):** Investigating
how the quantity demanded of one good changes in response
to a change in the price of another.
c. **Income Elasticity of Demand (YED):** Understanding
how changes in income affect the quantity demanded of a
good.

**2. Calculating Elasticity:**

a. **Formula for PED:** % Change in Quantity Demanded / %
Change in Price.
b. **Interpretation:** If PED > 1, demand is elastic; if PED < 1,
demand is inelastic; if PED = 1, demand is unitary elastic.
3. Factors Influencing Elasticity:**
a. **Substitutability:** The availability of substitutes affects the
elasticity of demand.
 b. **Necessity vs. Luxury:** Necessities tend to be inelastic,
while luxuries are more elastic.
c. **Time Horizon:** Demand elasticity may vary over the
short and long term.

**4. Practical Implications:**

a. **Pricing Strategies:** Firms use elasticity to determine
how changes in price will impact revenue.
b. **Government Policies:** Understanding elasticity helps
policymakers in designing effective taxation and subsidy
strategies.
c. **Consumer Behavior:** Elasticity influences consumer
choices and spending patterns.

**5. Case Studies:**

a. **Gasoline Prices:** Analyzing how changes in gas prices
affect consumer behavior and the overall economy.
b. **Luxury Goods:** Exploring the impact of economic
downturns on the demand for luxury items.

**Conclusion:**
Understanding the elasticity of demand is essential for
businesses, policymakers, and consumers alike. It provides
insights into market dynamics, helps in decision-making
processes, and contributes to the overall efficiency of an
economy. This report has aimed to shed light on the intricacies
of elasticity, paving the way for informed economic analysis and
strategic decision-making.
16.ELASTICITY OF SUPPLY
JOHN PAULCASTILLO
*Introduction:*
This report explores the concept of supply elasticity, assessing
its definition, key influencers, and significance in economic
contexts.

*Definition:*
Supply elasticity measures how the quantity of a good or
service responds to changes in its price, offering insights into
market dynamics.

*Factors Influencing Elasticity:*

1. *Time Horizon:* Short run = inelastic; Long run = potentially
elastic.
2. *Input Availability:* Scarce inputs = inelastic; Abundant inputs
= potentially elastic.
3. *Storage and Perishability:* Perishable goods = inelastic;
Non-perishable goods = potentially elastic.
4. *Substitutability of Inputs:* Limited substitutes = inelastic;
Readily available substitutes = potentially elastic.

*Significance:*
1. *Pricing Strategies:* Elasticity guides optimal pricing for
businesses.
2. *Government Policies:* Policymakers use elasticity to predict
the impact of taxes or subsidies.
3. *Consumer Behavior:* Understanding elasticity informs
consumers about potential price changes.

*Conclusion:*
Supply elasticity is a crucial economic concept, shaping
decisions for producers, policymakers, and consumers.
Examining influencing factors provides valuable insights for
effective decision-making in dynamic markets.
A REMINDER FOR YOU WHO’S READING THIS:

Never be ashamed of trying. Effortlessness is a myth. Hard things

will happen to us. We will recover, we will learn from it, we will
grow more resilient because of it. And as long as we are fortunate
enough to be breathing, we will breathe in, breathe through, breathe
deep, and breathe out. You got this!

-Taylor Swift

COMPILLED BY JACK DANIEL BALBUENA