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AbM Chap2
AbM Chap2
(APPECO)
MARKET
Is an interaction between
buyers and sellers of trading or
exchange.
It is where the consumer buys
and the seller sells.
Goods Market
Quantity Demanded
Demand Function
Qd = a - bP
Substitution Effect
It is felt when a change in price of a good
changes demand due to alternative consumption
of substitute goods.
Example: Lower prices encourages
consumption away from higher priced substitutes
on top of buying more with budget . Conversely,
higher price of a product encourages the
consumption of its cheaper substitute.
13
Income Effect
Is felt when change in the price of
good changes consumers’ income
or purchasing power, which is the
capacity to buy with the given
income.
14
Activity
1. Qd = 50 -2p
Point Price Qd
A 25 ?
B ? 2
C ? 6
D 18 ?
E 15 ?
F ? 26
G 10 ?
2. Qd = 150 – 5P
Point Qd Price
A ? 30
B 15 ?
C ? 24
D 45 ?
E 60 ?
F ? 15
G 90 ?
Non – Price Determinants of
Demand
Income
Tastes and Preferences
Consumer’s Expectation
Number of Consumers
Price of Related Goods 17
Supply Analysis
(APPECO)
Supply
Supply refers to the quantity of
a commodity which producers
or sellers are willing to produce
and offer at a particular price’, in
a given market, at a purticular
period of time. 19
Law of Supply
Says that quantity supplied varies directly
with price.
The higher the price, the higher the
quantity supplied;
The lower the price, the lower the
quantity supplied.
20
Supply Schedule
A supply schedule is a table showing
how much of a product firms will supply
at different prices.
Quantity supplied represents the
number of units of a product that a firm
would be willing and able to offer for
sale at a particular price during a given
time period.
Supply Schedule ( Candy )
Quantity Supplied
Supply Function
Qd = c + bP
Activity
1. Qs = 100 + 5P
Point Price Qs
A 20 ?
B ? 300
C ? 400
D 80 ?
E 100 ?
2. Qs = - 300 + 20P
Point Qs Price
A ? 15
B 40 ?
C ? 19
D ? 23
E 240 ?
F 300 ?
Non – Price Determinants of
Supply
Technology
Cost of Production
Number of Sellers
Price of Related Goods
28
Market Equilibrium
a state of balance when
demand is equal to supply. The
equality means that the quantity
that sellers are willing to sell is
also the quantity that buyers are
willing to buy for a price.
( Qd = Qs ) 29
Shortage
( Qd is greater than Qs )
Surplus
( Qd is lessc than Qs )
30
Elasticities
of Demand
and Supply
31
Elasticity
is measure of how much
buyers and sellers respond to
changes in market conditions.
32
Elastic
a change in a determinant will
lead to a proportionately greater
change in demand and supply.
the absolute value of the
coefficient of elasticity is greater 1.
33
Elastic
a change in a determinant will
lead to a proportionately greater
change in demand and supply.
the absolute value of the
coefficient of elasticity is greater 1.
34
Inelastic
a change in a determinant will
lead to a proportionately lesser
change in demand and supply.
the absolute value of the
coefficient of elasticity is less than
1. 35
Unitary Elastic
a change in a determinant will
lead to a proportionately equal
change in demand and supply.
the absolute value of the
coefficient of elasticity is equal to
1. 36
ɛd = %ΔQd
%ΔP
Elasticity of Supply & Demand