BASIC

PRINCIPLES OF
DEMAND AND
SUPPLY
 MARKET
— is an interaction
between buyers and sellers
of trading or exchange.
GOODS MARKET
— it is where we buy
consumers goods.
 LABOR MARKET
— workers job

employers
FINANCIAL MARKET
— which includes the
stock market where
securities of corporations
are traded.
 DEMAND
— is the willingness of a
consumer to buy a
commodity at a given
price.
DEMAND SCHEDULE
— shows the various
quantities the consumer is
willing to buy at various
prices.
DEMAND FUNCTION
— shows how the quantity
demanded of a good
depends on its
determinants.
EQUATION:
Qd= f(P)
TABLE 2.1 Hypothetical Demand Schedule of Martha for Vinegar (in bottles)

PRICE PER NUMBER

BOTTLE OF
BOTTLES
Php. 0 6 Qd=6–P/2
2 5
4 4
6 3
8 2
 DEMAND CURVE
Series 1
12

10

0
1 2 3 4 5

Series 1
 INCOME EFFECT
— is felt when a change
in the price of a good
changes consumer’s
real income or
purchasing power.
 SUBSTITUTION
EFFECT
— is felt when a change
in the price of goods
changes demand due to
alternative consumption of
 LAW OF DEMAND
— inverse relationship
between the price of a
good and the quantity of
demand
PRICE DEMAND

DEMAND PRICE
 NON-PRICE
DETERMINANTS OF
DEMAND
—If the ceteris paribus
assumption is dropped, non-price
variables that also affect demand
are now allowed to influence
NON-PRICE FACTORS:
INCOME EXPECTATIONS

TASTE POPULATION

PRICES OF
RELATED GOODS
THE DEMAND FUNCTION
WILL NOW READ :

D=f(P,T,Y,E,PR,NC)
 INCOME (Y)
— decreases, the capacity
to buy will decrease and
the demand will also
decrease even when price
does remain the same.
 TASTE (T)
— improved taste for a
product will cause a
consumer to buy more of
that good even if price
does not change.
EXPECTATION (E)
— consumer tends to
anticipate changes in
the price of goods.
PRICE OF RELATED
GOODS (PR)
SUBSTITUTE GOODS
– are those that are used
in place of each other.
 COMPLEMENTS
- Are goods that are
used together.
 NUMBER OF
CONSUMERS (NC)
— the population makes
up the group of
consumers who will buy
the product.
 SHIFT OF DEMAND
CURVE
-when a change in the price
of good is caused by non-
price determinant , this will
involve a change in the
entire demand curve.
 Figure 2.2 SHIFT OF MANUEL’S DEMAND
CURVE FOR STEAK DUE TO CHANGE IN
INCOME
12

10

8
PRICE PER KILO

0
1 2 3 4 5 6

Series 1 Series 2

QUANTITY (in kgs.

SUPPLY
What is supply?
REFERS TO THE QUANTITY
OF GOODS THAT A SELLER
IS WILLING TO OFFER
FOR SALE.
 Qs = 100 + 5p
Price of Fish (Per Kilo) Supply (in kilos)

P20 200
P40 300
P60 400
P80 500
P90 600
Table 2.2 Supply Schedule of Pedro for Fish in One Week
 Table 2.2:
Relationship between the price
of fish and the quantity that
Pedro is willing to sell is direct.
The higher the price, the higher
the quantity supplied.
 Figure 2.3 Supply Curve of Fish of Pedro for One Week
120

100 100

80 80

60 60

40 40

20 20

0 0 0
1 2 3 4 5

Quantity Supplied (in hundred kilos)

 The Law of Supply
Using the assumption of “ceteris paribus”
(other things constant) there is a direct
relationship between price of a good and the
quantity supplied of that goods. As the price
increases , the quantity supplied of that
product also increases. The high price of the
good serves as the motivation for the seller
to offer more for sale.
 NON-PRICE
DETERMINANTS OF
SUPPLY
•Figure 2.3 Price and quantity demanded.
•If the assumption of ceteris paribus is
dropped, non-price variables are now
allowed to influence supply.
Cost of production
Technology
Availability of raw materials and resources

These non-price determinants can cause an

upward or downward change in the entire supply
of the product, and this change is referred to as a
shift of the supply curve.
 SHIFT OF SUPPLY CURVE
• Figure 2.3 These changes are reflected on
a single supply curve and are changes fro
one point o another on the same curve.
This is referred to movement along the
supply curve. The reason for movement
along the supply curve is the change in
the price of the good.
•Once supply increases due to a non-
price determinant, the entire supply
curve will shift to the right to reflect
an increase, or to the left to reflect a
decrease as shown in Figure 2.4
 S1

S2

Quantity Supplied (in kilos)

 Chart Title
12

10

0
Series1

Series 1 Series 2 Series 3

 •The supply function will now
read: S= f (P,C,T AR), where the
Supply (S) of a good is a function
of the Price of the good (P), the
cost of production (C),
technology (T) , and the
availability of raw materials
Demand and Supply
in Relation to the
Prices of Basic
Commodities
Market Equilibrium
- is a state of balance when
demand is equal to supply.
If price is below the equilibrium
• In the above diagram, price (P2)
is below the equilibrium. At this
price, demand would be greater
than the supply. Therefore
there is a shortage of (Q2-Q1)
• If there is a shortage, firms will
put up prices and supply more.
As prices rises, there will be a
movement along the demand
curve and less will be
demanded.
• Therefore the price will
rise to P1 until there is no
shortage and
supply=demand.
If price is above the equilibrium
• If price was at P2. This is above
the equilibrium of P1. At the price
of P2, then supply (Q2) would be
greater than demand (Q1) and
therefore there is too much
supply. There is a surplus.
• Therefore firms would reduce
price and supply less. This would
encourage more demand and
therefore the surplus will be
eliminated. The new market
equilibrium will be at Q3 and p1.
APPLICATION of demand
and supply in relation to
housing shortage
• According to Profriends President and CEO
Guillermo Chua. We are suffering from a shortage
in mass housing that is expected to reach 6.5
million units in 2030.
• According to SUBDIVISION AND HOUSING
DEVELOPERS ASSOCIATION (SHDA), housing
shortage has been a perennial problem in the
country with accumulated backlog of about 3.92
million units from 2001 to 2011.
• Because of rapid growth of Philippine population,
housing in the country is one of the problem
• The supply of houses is less than the existing
demand.
• Many Filipino are seen putting up shanties and
make shift home in the streets, under bridges,
close to the railroads tracks, and near creeks.
• Buying and owning one'shome is always the
dream of every Filipino family.
• Other people who dream of owning their own
house mau option to borrow money from
financial institutions such as bank. (Ex. Pag-IBIG
and etc.)
Demand and Supply Curves for Housing
• MARKET EQUILIBRIUM - is a state where
economic forces such as supply and demand are
balanced and in the absence of external influence
the values of economic variable of economic
variable will not change.
• MARKET EQUILIBRIUM - where the demand and
supply curves intersect.
• Maximum price of houses for rent below
Php.5000, increase of houses for rent from
Php.5000 to Php.9000. (by unknown)