MANAGERIAL ECONOMICS – MODULE 2

DEMAND AND SUPPLY

Filipino often complain about increasing prices in the market, whether

these are for petroleum , meat or electricity . Others view this as a natural
behavior of the company, while those who engage in stock trading await
and speculate the next price per share of a company’s stock in the
Philippine Stock Exchange. These are some of the things that could be
influence by the demand and supply of the market.

LEARNING OBJECTIVES ;

At the end of this chapter , the student should be able to

1. Define what a market is

2. Describe and explain what is the law of supply and demand , and
determine the factors that affect them
3. Determine the equilibrium point in the market for a good based on
the given data
4. Interpret how prices result in shortages and surpluses in the market.

WHAT IS MARKET ?

Market is a term that is relative based on the industry where one is

involved in. There is the stock market , which may either go up or down.
Global news see the price of a oil in the world market as volatile , but often
times going up. An average reasonable individual has a chance to buy any
commodity at the nearest supermarket , wet market and the like.

Market is a place where buyers and sellers meet. The reason why we call
stock market a market is because there is buying and selling of stock in
that place. Wet market is the area where we can buy wet commodities ,
such as fish and dressed chicken . The two important elements in the
market are the buyer and the seller. These elements form the market , and
these are the same two important entities that form the demand and
supply. The buyers are the ones who determine the market demand. The
seller’s are the determinants of supply in the market.
DEMAND

Demand is the quantity of goods or services buyers are willing and able to
buy.

Other factors that could affect the demand of the market other than price

1. Income
2. Price of related goods and services
3. Taste and preference
4. Expectation on future prices
5. Changes in population

SUPPLY – is the quantity of goods or services sellers are willing and able to
sell at different prices . If demand depicts the willingness and ability of the
people to purchase a commodity , supply shows the behavior of producers
in selling their commodities.

Other factors affecting supply

1. Input price
2. Price of related goods and services
3. Expectation on future prices
4. Technology
5. Government regulations
6. Number of suppliers
7. Unexpected calamities or natural disasters

MARKET EQUILIBRIUM

- Is a point where quantity demanded is equal to the quantity

supplied. This is the point where the buyers are willing and able to
sell their product or deliver the service.

NORMAL GOODS – are goods or services that have an increasing demand

whenever income increases. Inferior goods are goods or services that are
decreasing whenever income increase.

Price of related goods could be either a substitute good or a

complementary good. Substitute goods are commodities that can replace
another commodity in its absence. Complementary goods are goods that
go in hand with each other.
ACTIVITY – MODULE 2

TRUE OR FALSE

__________1. Quantity demand is the amount that buyers are willing or

able to purchase .

__________2. Expectations , population (number ) , tastes and

preferences are determinants of both demand and supply.

__________3. The higher the income , the lower the demand will be for
normal goods.

__________4. Complements are evident where an increase in the price of

one leads to decrease in the supply of the other.

__________5. Input prices require that there are raw materials used to
create the commodity.

__________6. Taxes and subsidies are the only ways that the government
may intervene in the demand for goods or services.

___________7. Technology always increases quantity supplied.

___________8. An increase in government intervention always shifts the

supply curve to the left.

___________9. Substitutes will result in the demand curve shifting to the

right when the price of one product is increased.

__________10. Natural calamities are determinants of quantity

demanded.