Graded Activity No.

3
Coverage: Fundamental Concepts of Microeconomics
Demand and Supply
October 17, 2023

Instructions: This is a 50-points graded activity. Please make your answers complete, direct and
responsive to the questions and original - NO COPY PASTE!!!

1. Explain the ‘Law of Demand’. What is the relationship between price and quantity
demanded? Explain. (10 pts.)
2. Expectation of future price is one of the factors that change the behavior of buyers and
sellers. In this regard, answer these questions: (10 pts.)
a. What happens to the present demand if there is an expectation of price rollback?
(Give short explanation)
b. What happens to the present supply if there is an expectation of price hike? (Give
short explanation)
3. Differentiate normal goods from inferior goods. What is the effect on the quantity
demanded of inferior goods of consumer when there is an increase in the consumer’s
income? Explain briefly. (10 pts.)
4. Explain the following terms: (15 pts.)
a. Market
b. Supply function
c. Movement along the curve
5. Using the diagram below, briefly explain how the market works: (15 pts.)

ANSWERS:
1.) In law of Demand, when the price of a product increases, the demand of that product will
decrease. When the price decreases, the demand for it will increases. When a product is way too
pricey or it exceeds their budget for the particular product, people tend to find substitutes. Much
cheaper and they can save more. There is a negative relationship between the price and quantity
demanded. It is shown in a graph or so-called demand curve. When the price of a product
increases, the quantity demanded decreases. And vice versa.

2.) A. The demand will decrease because people will just wait until the said price rollback was
implemented in the market, also because they want to save more and buy other products within
their budget. As for the retailers, they’ll have an indefinite supply of products because of the said
price rollback, people tend to disregard the product in the market now and they will just wait
until the product goes on sale.

B. The supply of the product will decrease because people will hoard and stock those products so
when the price increases are being implemented, they don’t have to buy it anymore because they
bought many and they stacked up already.

3.) In simple words, the Normal Goods are the branded ones and the Inferior Goods are the
Normal ones or used ones that are being sold for lower price. When there is an increase in the
consumer's income, the demand for the Inferior Goods will decrease because they can now buy
the normal goods without thinking twice.

4.) A. Market- This is the location where supply and demand take place. For example, in a wet
market, People want to buy fish at a lower price. He/She will ask for “tawad” . The seller will
give “tawad” if she buys more of his/her products.

B. Supply Function – This analyzes the change of Demand & Supply every time the price
changes

C. Movement Along the Curve – When the price of a particular product increases, this will
create an Movement Along the Curve. In simple words, every movement that it makes, it will
create a movement along the curve.

5.) The income of a household is used to buy goods and services, also used in spending for other
things. While in firms, it was used for wages of employees, rent, and other utilities. Both of them
are circulating their money but in different ways.