Basic Principles o

f Demand and Suppl

y

DEMAND
Albert "Sam" Llaguno, LPT
Subject Teacher
 Market
 Is an interaction between buyers and
sellers of trading or exchange
– Good market – most common type of market because i
t is where we buy consumer goods
– Labor market – is where workers offers services a
nd look for jobs, and where employers look for workers to
hire
– Financial market – which includes the stock mark
et where securities of corporation are traded
 Price

• Monetary value of a unit of commodity

 DEMAND

 Is the willingness of a consumer to b

uy a commodity at a given price

 refers to the quantity of the commodi

ty which a consumer is willing to buy
at a particular price during a partic
ular period of time
 DEMAND

 is defined as a schedule which shows

the various amounts of a product whic
h consumers are willing and able to p
urchase at each specific price in a s
et of possible prices during some spe
cified period of time.
 DEMAND
 Note the phrase, “willing and abl
e”, because willingness or ability a
lone is not effective in the market

For Example: One may be willing to buy a iphone 11 Pro max, bu

t if this willingness is not backed by the ability to purcha
se, that is, by the necessary amount of money, it will not b
e considered as a demand and it will not be reflected in the
market.
 Demand Schedule

 show the tabular representation of the relationship

between the quantity of a good demanded and the
price of that good
 Demand Curve

 a graph showing ho
w the demand for a
commodity or servi
ce varies with cha
nges in its price.
 Demand Function

 shows how the quantity demanded of a

good depends on its determinants
 describes the inverse relationship be
tween price and quantity demanded in
an algebraic expression
Demand Function
-refers to the mathematical equation of two
variables :

Qd (Quantity demand) = dependent variables

P (price) = independent variables ; in which Qd
changes when the Price change
 Demand Schedule
Point Price (in Millions) Quantity Demanded for SUV

A 0 4,000

B 1 3,500

C 2 3,000

D 3 2,500

E 4 2,000

F 5 1,500

G 6 1,000

H 7 500
Demand Function:

Qd=a-bP
Qd= 4000-500P
For example:
a. Qd=4000-500(4)
Qd=4000-2000
Qd=2000
 Law of Demand
 as the price increases, quantity de
manded decreases; and as price decr
eases, quantity demanded increases,
if other factors remain constant (c
eteris paribus)
Law of Demand
 Law of demand explains
consumer choice behavior when
the price changes

 In the market, assuming other

factors affecting demand being
constant, when the price of a good
rises, it leads to a fall in the
demand of that good.
Law of Demand
 This is the consumer natural
choice behavior

 This happens because a

consumer hesitates to spend more
for the good with the fear of
going out of cash.
Law of Demand
 The diagram in right shows the
demand curve which is downward
sloping.

 Clearly when the price of the

commodity increases from price
p3 to p2, then its quantity demand
comes down from Q3 to Q2 and
then to Q3 and vice versa.
 In other words,
• if a price of a  if the price of the
commodity falls, commodity rises,

• the quantity dem its quantity demanded

anded of it will will decline
rise
Law of Demand
MARKET DEMAND
is the sum of the individual demand for a product from buyers
in the market. If more buyers enter the market and they have the
ability to pay for items on sale, then market demand at each price
level will rise.

Market Demand Curve

A curve that relates the quantity of a good that all consumers in a
market buy to the price of that good
MARKET DEMAND SCHEDULE
Price Alex Christopher Ricky Market Demand
(Php) (units (units) (units) (units)
)
80 6 10 16 32

100 4 8 13 25

120 2 6 10 18

140 0 4 7 11

160 0 2 4 6
 Legend
DA= Demand of Alex
MARKET DEMAND CURVE DB= Demand of Christopher
DC= Demand of Ricky

Price
5 The market demand curve
is obtained by summing
the consumer’s demand
4 curves

3
MarketDemand

1
DA DB DC

0 5 10 15 20 25 30 Quantity
Basic Principles o
f Demand and Suppl
y

DEMAND
Albert "Sam" Llaguno, LPT
Subject Teacher
Validity of the Law of Deman
d
This is only true if other variables re
mains constant (ceteris paribus)
 Determinants of Demand
 Consumers' Income
The direction in which the demand w
ill change in response to a change in
income depends on the following type
of goods.
A rise in his money income, all other
things remaining the same, is likely
to increase his ability to buy.
 Determinants of Demand
Two types of Goods
1. Normal Good - refers to a good for which demand a
t every price increases when income rises or vice
versa
2. Inferior Good - to a good which demand falls when
income rises and vice versa.
 Determinants of Demand
 Price of other commodities
The demand for any particular good will
be affected by change in the price of relat
ed goods.
Thus, the demand for tea depends not only o
n its own price but also on the price of co
ffee, the price of sugar, the price of mil
k, etc.
 Determinants of Demand
 Price of other commodities

If the consumption of one commodity leads t

o a fall in the consumption of another comm
odity, they are called substitutes.
 Determinants of Demand

Two Relationships of Products

1. Substitute Products - are goods that can b

e used in place of other goods

2. Complementary Products - are goods that go

together or cannot be used without the oth
er
 Determinants of Demand
 Consumers' Expectation of Future Pric
es
The quantity of good demanded withi
n any period depends not only on pric
es in that period but also on prices
expected in future periods.
 Determinants of Demand
 Consumers' Tastes and Preferences

Consumers' taste and preferences are major factor

s in determining the demand for any product

With the change in tastes and preferences the dem

and for a commodity of an individual consumer is lik
ely to change
 Determinants of Demand
 Number of Consumers/Population (Marke
t)

An increase in the population means more d

emand for goods and services
The larger the number of buyer in the mark
et, the higher is the demand for a good or a
service
Let’s have an activity!
ACTIVITY 1: REFRESHER
Complete the demand schedule below if Qd= 800-8P

P QD
12
14
16
18
20