GROUP 2

PRESENTS
 Let’s Explore.
01 Other Factors Affecting the
Demand of a Commodity

02 Why is the Demand Curve

Downward Sloping?

03 Substitution Effect

04 Income Effect
Ice Breaker
Let’s warm up first.
 Welcome!!
We are the Group 2.
Today, you will learn interesting lessons.
So, brace yourselves and fasten your seat belts
as the rocket takes you high up in the sky.
Enjoy your journey.
OTHER FACTORS AFFECTING THE
DEMAND OF A COMMODITY

INCOME PRICES OF EXPECTATION

OTHER
COMMODITIES

TASTE MARKET
 INCOME
As indicated in the concept of
demand, it is the willingness and
HIGHER LEVEL
capacity of a consumer to buy a CONSUMPTION
commodity at alternative prices.

LOWER AND
LIMITED
A higher level of income will give CONSUMPTION
him higher capacity to consume
while a lower income will give
him limited purchasing power.
PRICES OF OTHER COMMODITIES
If the other good is a substitute, PRICE DEMAND

the increase in the price of the

substitute good may increase
the demand for the commodity
at hand.

If the other good is a PRICE DEMAND

complementary good, a
decrease in its price will impact
positively on the demand of the
good being investigated.
 EXPECTATION
In addition to the price of the PRICE CONSUMPTION
(Tomorrow) (Today)
commodity, the expectation or
prospect on what is going to
happen to the price can influence
the demand for the commodity.

If there is a prospect that the price PRICE CONSUMPTION

(Tomorrow) (Today)
of US dollar will decline tomorrow,
people will postpone their purchase
of US dollars. They will buy US
dollars the following day when its
price is expected to be lower.
 TASTE
The formation of taste is influence by several factors. Some of them
can be shape by cultural values, others through peer pressure or
the power of advertising.
DEMAND

NEW YEAR’S DEMAND

EVE

SMOKING IS
DANGEROUS TO
YOUR HEALTH
 MARKET
The size and characteristics DEMAND

of the market can also

influence the demand for
the commodity.
An increasing population
can contribute to the
expansion of existing
markets for various
commodities.
WHY IS THE DEMAND CURVE
DOWNWARD SLOPING?
The demand curve
shows a negative
relationship between
the price of the
goods and the
quantity demand.
 SUBSTITUTION EFFECT
The substitution effect PRICE CONSUMPTION

describes the decision

of a consumer to
substitute an
expensive good PRICE CONSUMPTION
with cheaper
goods when there
is a price change.
 SUBSTITUTION EFFECT
PRICE CONSUMPTION
In both examples, the
inverse or indirect
relationship between
the price and demand
of the good has been
PRICE CONSUMPTION shown through the
OTHER substitution effect.
GOODS
 INCOME EFFECT
It refers to the modification of the PHP 20/
consumption of a commodity due PHP 500
pc
to the change in the purchasing
power of the consumer resulting INCOME PRICE
from a price change.

An increase in the purchasing PHP 25/ 25 pcs

power will enable the consumer pc
to buy more of the good while a
QUANTITY
reduction in purchasing power PRICE
DEMAND
will reduce its capacity to 20 pcs
purchase.
 INCOME EFFECT

PHP 5,000/
PHP 20,000 4 units
unit

INCOME PRICE QUANTITY DEMAND

PHP 2,000/
unit 10 units

PRICE QUANTITY DEMAND

 INCOME EFFECT
The illustration has shown that a decline in price
will result in increase in quantity demand because
the purchasing power of the consumers’
income has expanded and he can buy more
of the commodity whose price has declined.

This again confirms the inverse or

indirect relationship between the price
of the commodity and the quantity
demand.
 SUMMARY
Other Factors Affecting the Demand of a Commodity
Income
A higher level of income will give
higher capacity to consume
while a lower income will give Prices of other Commodities
limited purchasing power. The demand for a good or service
may also be influenced by prices of
Expectation
other goods and services.
The prospect on what is going to
happen to the price can influence Taste
the demand for the commodity. The formation of taste is influenced
by several factors like cultural
Market values, peer pressure or advertising.
An increasing population can
contribute to the expansion of
existing markets for various
commodities.
 SUMMARY
Why is the Demand Curve Downward Sloping?

The demand curve shows a

negative relationship between the
01 price of the goods and the
quantity demand.

As the price of a commodity

02 declines, the quantity demand
increases.

When the price increases, the

03 quantity demand declines.
 SUMMARY
Why is the Demand Curve Downward Sloping?

The negative relationship of the

demand curve can be explained
01 through the substitution and
income effects.

Substitution Effect describes the

decision of a consumer to
02 substitute an expensive good with
cheaper goods.

Income Effect refers to the

modification of the consumption of a
03 commodity due to the change in the
purchasing power of the consumer.
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