SOCIAL SCIENCE 5: ECONOMICS

DEMAND Part 1 | LG 1.1

At the end of this lesson, the student should be able to:

1. define the meaning of a market and its two basic components;
2. explain the basic concept of “The Law of Demand”; and
3. enumerate and discuss the non-price determinants or factors affecting demand.

Suggested Time: 30mins. | Actual Time Spent: ____min(s)

In the previous lesson, it was clearly explained that markets fail because of the following
reasons;
1. The presence of positive and negative externalities.
2. Too much or lack of public goods.
3. Monopoly power.
In order to prevent markets from failing, the government can and must provide rewards
and penalties to some major key players in the economy such as imposing taxes and providing
subsidies as possible solutions. Taxes and subsidies can help inspire behavior from key players in
the economy that can result in positive externalities. Meanwhile, taxation can help cut down
negative behavior.
But what do we mean when we say market? How important is the market in the economy? Why is
it that prices in the market change over time?
Take for example, prior to the current COVID-19 Pandemic, the average price of a disposable
mask is only around P4.50 apiece. And during the pandemic the price of each disposable mask is
around P20.00 or more. This is just one of the many examples that we can associate today in the
current market situation in relation to price changes of various commodities in the market.
Another example, during Typhon Sendong, many places in Mindanao were affected by such a
tragic calamity that one of the biggest problem encountered at that time was the availability of
drinking water. Many sellers took advantage of the event. The usual price of a regular sized bottled
water was around P15.00. But when the calamity struck, it bloated to P100.00 each.
So the question here is: what makes it possible for prices to change drastically?
This is why we need to further study how markets work in consideration of price changes

Suggested Time: 4mins. | Actual Time Spent: ____min(s)

PSHS Social Science 5: Economics | Page 1 of 9

 A typical marketplace is defined as a venue where people meet to conduct transactions like
buying and selling. A market plays an important role in the society because it provides goods and
services needed by the consumer with easy accessibility and it also gives opportunity for producers to
generate profit or income. This transaction may happen physically or digitally just like in our modern
society today where people may wish to buy or sell products online. The primary reason for most
consumers who patronize online transactions more is the degree of convenience. There is no need for
them to go to a physical place. Moreover, the current COVID-19 Pandemic pushes people to do
transactions online for safety reasons. A market is a mechanism that facilitates the overall transactions
between buyers and sellers to determine prices and quantities in a market-driven economy.
There are several kinds of markets that exist in our economy. The most common is the goods
market. When we say goods market, it refers to a market for outputs, whether goods or services. This
includes the food we eat, the gadgets we use, and the movies we watch. We also have the labor market
(which is a factor market) where human physical effort is bought and sold. For example: companies
that need people to work for them act as the buyers of this labor and those who will apply for a job are
considered the sellers of this labor. Another is the Financial market or money market where people
basically purchase or sell financial assets. Regardless of the kind of market, one thing they share in
common is that they all respond to prices.
To understand how the market determines prices, we need to ask what causes these price
changes. As mentioned above, markets function if there is a buyer who is willing to pay for a particular
good as well as a seller who is then willing to sell that particular good also. Therefore, a market
comprises of two important agents: the buyer which constitutes the demand side and the seller which
constitutes the supply side. Demand and supply are also known as the market forces that influence the
prices in the market, considering other factors held constant.

Figure 1
In this figure it goes to show how a market works it involves two basic components the buyer/consumer (demand) and the
seller/producer (supply) with single purpose to engage in a transaction.

The Demand Side of the Market

Basically demand is one of the market forces that deals with the amount or quantity that
consumers are very much willing to purchase. According to McConnell, Brue, and Flynn “Demand is
a schedule or a curve that shows the various amounts of a product that consumers are willing and able
to purchase at each of a series of possible prices during a specified period of time. Demand shows the
quantities of a product that will be purchased at various possible prices, other things equal” (p. 79).

A demand schedule is used to clearly depict the individual demand as to the relationship
between quantity purchased and the price of the commodity considering other factors held constant.

PSHS Social Science 5: Economics | Page 2 of 9

 Table 1
A Hypothetical Demand Schedule of a Particular Product

Looking at the table presented above, we can see that there is an inverse relationship between
the price and the quantity demanded of product X. As the price increases, the quantity demanded for
product X decreases. A graphical representation of this table is presented below.

Figure 2
Hypothetical Demand Curve for Product X

In order to come up with the figure presented above, we have to plot table 1 where each point
shows the combinations of prices and quantity demand for product X. The connection of these points
will depict a demand curve. This downward sloping curve represents the indirect or inverse
relationship between the prices and the quantity demanded for product X. With this, it goes to show that
considering other factors held constant, increasing the price will tend to decrease its quantity demanded
until it reaches zero.

This common market phenomenon falls under one of the basic laws of economics and it is
known as the Law of Demand. This law means that when prices of a particular product rises (ceteris
paribus or other things held constant) consumers tend to purchase less. On the other hand, when the
prices drop (ceteris paribus) quantity demanded rises. There are two important reasons to remember
why quantity demanded tends to fall as price increases:

1. The Substitution Effect – this will happen because a particular good becomes more
expensive when price increases. Consumer may find a way to buy other commodities in
which can also give them the same functionality but at a much cheaper price than the
previous commodity. Instead of buying X they will probably buy product Y.
2. The Income Effect – as discussed above, a higher price will generally decrease the quantity
demanded for a good. It occurs because consumers become poorer than before. Their
purchasing power cannot compensate for the higher price of the good. Since other factors
such as income are held constant, a consumer will purchase less of the product.

PSHS Social Science 5: Economics | Page 3 of 9

The Market Demand

As we mentioned earlier, the market comprises of a wide range of sellers and buyers. Let us
assume that the hypothetical demand schedule in table 1 refers to only one consumer. Let us now
consider the presence of more than one buyer in the market. We will just assume that there are only
three buyers in the market namely Raymundo, Anthony, and Daryl in order for us to easily identify the
overall quantity demanded at each given price of our product. In each given price we just simply add
the quantities demanded by each buyer (as seen in table 2). We can then plot each price and the total
quantities demanded as a single point on the market demand curve (see figure 3).

Table 2
Market Demand for a Kilo of Banana

Figure 3
Market Demand Curve
This market demand curve is the sum of the individual demand curves at each given price assuming that there are only three
(3) consumers in the given market.

We can see in figure 3 the overall market demand of our given product at each corresponding
price. These are just hypothetical figures to simplify our discussion on what a market demand is. So far,
we have only considered that the quantity demanded is determined only by the good’s own price.

However, in other circumstances, there are also other factors that can affect the degree of
purchases. We refer to these as the non-price determinants or factors affecting demand. Considering
such non-price determinants, it will result in a change in demand and the demand curve will shift either
to the right or to the left (considering own prices held constant).

PSHS Social Science 5: Economics | Page 4 of 9

The Non-Price Determinants or Factors

1. Tastes or Preferences

Image 1
Photo Retrieved from: https://www.gameanax.com/smartphone-console-best-platform-gaming/

A desirable taste or preference of a buyer for a particular product means greater demand
for that product. This will result in a rightward shift of our demand curve. On the other hand, if
it is unfavorable on part of the consumer then it will result in a lesser demand and the demand
curve will shift to the left. For example, video gamers may choose smart gaming phones than
console platforms because handheld devices are easier to carry and more accessible.
2. Population or market size

Image 2
Retrieved from: https://www.hiclipart.com/free-transparent-background-png-clipart-jimoa

If the population of an area increases, ceteris paribus, it will likely mean that demand
will also increase. For example, the Balik Probinsya Program of the Philippine government
may result in an increase of the population of a particular locality. The demand for consumer
goods may then increase due to the additional number of people that will possibly purchase
products in that locality.

PSHS Social Science 5: Economics | Page 5 of 9

 3. Prices of Related Commodities

Image 3
Retrieved from: Rachael Rettner - Senior Writer April 06, 2020 (Image: © Shutterstock)

There are two basic classifications of related goods in economics. These are:
a. Substitute Goods – these are goods that can act as the best alternative or a replacement for
another good which perform similar functions based on a consumer’s perception. If two
products (A and B) are considered as substitutes an increase in the price of product (A) will
increase the demand for product B. On the other hand, if the price of product A will decrease
then the demand for product B will decrease as well. For example: If you cannot afford to
hire a grab car to reach your destination then you may take the MRT or the bus instead.
b. Complementary Goods – these are goods that go along or is used together with other
commodities. For example: Some coffee drinkers are not used to drinking black coffee
(coffee w/o sugar). If the price of sugar rises, ceteris paribus, it is highly probable that there
will be a lesser demand for coffee. Another example is when the price of a computer
console drops, it results in an increase in the demand for computer games.
Any change in the price of both substitutes and complements may influence the level of
demand for certain goods in the market.
4. Expectations

Image 4
Photo Retrieved from: https://www.scmp.com/lifestyle/health-wellness/article/3052101/why-hong-kong-panic-buying-happened-herd-
mentality-media, Published by Kate Whitehead

PSHS Social Science 5: Economics | Page 6 of 9

 Change in buyers’ expectations may lead to a shift in demand. Expectations among
buyers may vary for several reasons. It may be triggered by certain circumstances such as
expected price increase in the future or an expected decrease in the supply of a particular
product. This usually leads to panic buying where consumers urgently go to the market to buy
more of the products because they fear that prices may increase in the next days or that supplies
might become inadequate. A very noticeable example is when in many parts of the world people
rushed to stores and bought alcohol, face masks, or even the toilet papers in the midst of the
COVID-19 pandemic.

5. Consumer’s Income

Image 5
Photo Retrieved from: https://www.gobankingrates.com/money/wealth/rich-vs-wealthy/, Published by Will Healy, Build Your
Wealth, May 5, 2020

For very obvious reasons, income is one of the most important key factors influencing
demand. If one’s income increases, ceteris paribus, this results in an increase in demand since
this individual can afford to buy more of the product. On the other hand, those whose incomes
decrease, ceteris paribus, will tend to buy less of the product.

Suggested Time: 21 mins | Actual Time Spent: ____min(s)

Just for Fun: In this segment of our module there are a series of questions or tasks that you have to
accomplish. However, this is a non-graded activity but a way to help recall our discussions above, as
well as prepare for our next topic.

Instructions: Carefully read each question below and write only the letter of your corresponding
answer. (Write it in your respective economics notebook).

1. When will consumers search for a substitute for their corresponding products?
a. when the price of the corresponding product is low
b. when the price of the corresponding product is high
c. consumers do not have the capacity to search for another product
d. when the price of the corresponding product does not meet the required number of units

2. When the price of a good decreases the quantity demanded ___________.

a. decreases b. increases c. stays constantd. stays at a lower demand

PSHS Social Science 5: Economics | Page 7 of 9

 3. Which of the following is true when it comes to a non-price factor of demand?
a. The quantity of a commodity demanded by a consumer is influenced by the number of
consumers in the market.
b. The quantity of a commodity demanded by a consumer is not influenced by the number
of consumers in the market.
c. The quantity of a commodity demanded by a consumer is influenced by the number of
products in the market.
d. The quality of a commodity demanded by a consumer is influenced by the number of
consumers in the market.

4. _______ is considered as the mechanism that facilitates transactions.

a. financial market b. goods market c. labor market d. market

5. Which of the following is true when it comes to the law of demand?

a. A rise in the price of a product will generally lead to a decrease in the quantity of the
commodity demanded per time period.
b. A fall in the price of a product will generally lead to a decrease in the quantity of the
commodity demanded per time period.
c. Any rise in the price of a product will generally lead to a rise in the quantity of the
commodity demanded per time period.
d. An increase in the income of a consumer will generally lead to a decrease in the
quantity of the commodity demanded per time period.

Suggested Time: 3 mins | Actual Time Spent: ____min(s)

To sum things up:

1. A marketplace is defined as a venue where people meet to conduct transactions like
buying and selling.
2. A market is a mechanism that facilitates the overall transactions between buyers and
sellers to determine prices and quantities in a market driven economy.
3. Common Types of a Market;
a. Goods Market
b. Labor Market
c. Financial Market
4. According to McConnell, Brue, and Flynn “Demand is a schedule or a curve that shows
the various amounts of a product that consumers are willing and able to purchase at
each of a series of possible prices during a specified period of time. Demand shows the
quantities of a product that will be purchased at various possible prices, other things
equal” (p. 79).
5. The Law of Demand states that “when prices of a particular product rises (ceteris paribus
or other things held constant) consumers tend to purchase less. On the other hand, when
the prices drop (ceteris paribus) quantity demanded rises”.
6. Market Demand is the horizontal summation of all the demand of the products by
individuals at a given price.
7. The non-price factors or determinants of demand are as follows;
a. Tastes or preferences
b. Population
c. Prices of related commodities
d. Expectations Suggested Time: 2 mins | Actual Time Spent: ____min(s)
e. Consumer’s Income
PSHS Social Science 5: Economics | Page 8 of 9
References:

Textbooks

Medina, Roberto G. (2003) Principles of Economics – Rex Bookstore Inc.

Pagoso, C., Dinio, R., Villasis, G., (2006) Introductory to Macroeconomics – Revised Edition – Rex
Bookstore, Inc.

Samuleson, P. and Nardhaus, W. (1998) Economics – 16th Ed. McGraw – Hill Companies,
Inc.
McConnell, Bruce, Flynn, (2009). Economics, Principles, Problems, and Policies 18th Ed.,
McGraw-Hill Irwin, Inc. 2009
Online Materials

(Image 1) Photo Retrieved from: https://www.gameanax.com/smartphone-console-best-platform-

gaming/

(Image 2) Retrieved from: https://www.hiclipart.com/free-transparent-background-png-clipart-jimoa

(Image 3) Retrieved from: Rachael Rettner - Senior Writer April 06, 2020 (Image: © Shutterstock)

(Image4) Photo Retrieved from: https://www.scmp.com/lifestyle/health-wellness/article/3052101/why-

hong-kong-panic-buying-happened-herd-mentality-media, Published by Kate Whitehead

(Image 5) Photo Retrieved from: https://www.gobankingrates.com/money/wealth/rich-vs-wealthy/,

Published by Will Healy, Build Your

* Lay-out and Design of Learning Guide Credit: Nneka B. Evangelists, SS 5 Teacher, PSHS-
CALABARZON Campus

Prepared by: Rudyrick L. Tabalon Reviewed by: Vladimir S. Lopez

Position: Special Science Teacher II Position: Special Science Teacher IV
Campus: PSHS-SRC Campus: PSHS-MC

PSHS Social Science 5: Economics | Page 9 of 9

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