LESSON 7 - Factors Affecting Demand and Supply

Factors Affecting Demand
and Supply
Applied Economics
General Academic Strand | Accountancy, Business, and Management
The pandemic
forced
businesses to
get creative and
dynamic.
2
Learning
Competency
Discuss and explain factors affecting demand
and supply (ABM_AE12-Ie-h-5).
3
Factors Affecting Demand and Supply
Determinants of Demand
● Tastes
● Number of buyers
● Income
● Prices of related goods
● Consumer expectations
4
Tastes
● Preference is the order of an individual’s choices

and alternatives based on their relative utility
(satisfaction).
● Demand for newer phone models shifts to the

right, while the demand for phones which lack
features shifts to the left.
5
Number of Buyers
● An increase in the number of buyers in the market

causes the demand to increase, shifting the
demand curve to the right.
● A reduction in the number of buyers in the market

causes demand to decrease, shifting the demand
curve to the left.
6
Number of Buyers
● When people
immigrate to the
cities, demand will go
up in the cities.
● But for the towns they

emigrated from,
demand will go down.
7
Number of Buyers
Demand can also

depend on buyers’
characteristics.
8
Income
● If demand for a good that expereinces an increase

in its demand due to a rise in consumers’ income.
The good is considered a normal good.
○ Example: Electricity, wheat
● Inferior goods are goods and services whose

demand drops when people’s incomes rise.
Example: Canned goods, Instant noodles,
9
● When consumer income
levels increase, the
demand for normal
goods rises, while the
demand for inferior
goods lowers.
● If prices are low,
consumers may prefer
normal goods, but when
prices rise, they might opt
instead for inferior goods.
10
Prices of Related Goods
● Substitutes
○ Goods that are demanded or consumed in place

of another good
○ When the price of one good increases, the

demand for another good increases, and vice
versa
11
12
● Complements
○ Goods that are demanded or consumed along

with other goods (consumed together).
○ When the price of one good increases, the

demand for another good decreases, and vice
versa.
13
14
● Unrelated Goods
○ Are goods where the demand is independent of

the price of other goods.
○ When the price of one good increases or

decreases, it does not affect the other good's
demand.
15
16
Consumer Expectations
Expectations for a future price increase will influence the

demand for goods and services today.
17
Demand Shift to Market
Equilibrium
When the demand curve shifts

to the right (D to D*), the
equilibrium quantity increases
(Q to Q*). The equilibrium price
will also increase (P to P*) to
keep the market in equilibrium.
18
Demand Shift to Market
Equilibrium
When the demand shifts to the

left (D to D*), the equilibrium
quantity decreases (Q to Q*).
The equilibrium price also
decreases (P to P*) to keep the
market in equilibrium.
19
Factors Affecting Demand and Supply
Determinants of Supply
● Resource prices
● Technology
● Taxes and subsidies
● Prices of other goods
● Number of producers
● Producer expectations
20
Cost of Input
● Higher costs means lower

profits, and producers will
supply less at any given price.
● If the cost of production

decreases, producers will
supply more at any given price.
21
Technology
Any improvement in
technology or techniques
in production enable
firms to produce more.
22
Taxes and Subsidies
● Taxes are compulsory

contributions to the government.
● Subsidies an amount of money

given directly to firms by the
government to encourage production
and consumption.
23
Prices of Other Goods
● If the price of one good is high in the market, it

encourages producers to make it more than other
goods.
● But if the price of the other good is higher, the

producer will change their production and create
more of the other good.
24
Number of Producers
● When there are more producers, the overall

supply will increase, and the supply curve will shift
to the right.
● When there are less producers, the overall supply

will decrease, and the supply curve will shift to the
left.
25
Producers’ Expectations
● Expectations about a product's future price affect

the willingness and ability of a producer to supply
a product.
● However, it isn't easy to predict how producers will

react to an increase in the future price.
26
Producer Expectations
● Producers can withhold some products to reap

more profits in the future.
● Producers can expand their production and make

more products.
27
Supply Shift to Market
Equilibrium
When the supply curve shifts to

the right (S to S*), the
equilibrium quantity increases
(Q to Q*). The equilibrium price
increases to keep the market in
equilibrium (P to P*).
28
Supply Shift to Market
Equilibrium
When the supply shifts to the

left (S to S*), the equilibrium
quantity decreases (Q to Q*).
The equilibrium price increases
(P to P*) to keep the market in
equilibrium.
29
The Labor Market
● Labor demand is the

amount of labor employers
seek to hire over a period
of time
● When wages increase,

employers will demand
fewer labor, and vice versa.
30
The Labor Market
● Labor supply is the

amount of labor offered for
hire over a particular
period.
● When wages are lower,

fewer people are willing to
work, and vice versa.
31
The Labor Market
The amount of labor that is being hired at the

equilibrium wage is called equilibrium employment.
32
The Labor Market
● Labor shortage happens

when labor demand is
greater than labor supply.
● Labor surplus is when

labor supply is greater
than labor demand.
33
The Labor Market
● Minimum wages are price floors for labor.
● These are imposed based on the required level of

income in order to support daily living.
● Wages are known to be sticky, or resistant to a decline

or an increase.
34
Non-wage Determinants of Labor Demand
● Demand for output

● Technology
● The number of companies
● Government regulations
● Price and availability of
other inputs
35
Demand for Output
● When the demand for goods increases, producers

are encouraged to create more to reap more
profits.
● When the demand for goods decreases, producers

are discouraged to produce more.
36
Technology
Technology can
complement or replace
existing labor.
37
Technology
Example:
The tools of digital

marketing can replace the
people behind print
advertising.
38
Number of Companies
● When more companies are producing a product, it

increases labor demand.
● And if fewer companies are producing, it

decreases labor demand.
39
Government Regulations
● When government regulation requires colleges

and universities to hire professors with at least a
master’s degree, there will be an increase in labor
demand for master’s degree holders
● Likewise, there will be a decrease in labor demand

for people with fewer qualifications
40
Price and Availability of Other Inputs
● As the amount of
other input increases,
labor demand will also
increase.
● If the number
decreases, labor
demand will also
decrease. 41
Non-wage Determinants of Labor Supply
● Required education
● Government policies
42
Required Education
When people are

required to have more
education, training, and
skills, it can cause a
decrease in labor supply.
43
Government Policies
● The government may support, or even require,

rules that set high qualifications for certain jobs.
● The government may subsidize education and

training, or even lower the required level of
qualifications.
44
True or False. Sign a finger heart if the statement is
Try This! true. If false, sign a thumbs down.
An increased number of workers will cause a

leftward shift to the supply curve.
45
3. If the consumption of a good or demand

for a good increases as income increases,
the good is considered a normal good.
46
4. Complements are goods that can be used

in place of another good.
47
5. Technology can act as a substitute by

replacing human employees.
48
6. Substitutes are goods that can be used

with another good.
49
7. The increase in available workers results in

an increased unemployment rate and a
decreased employment rate.
50
Photo Credits
Slide no. 4: Equal by Ryan Spiering is licensed under CC BY 3.0 via The Noun Project
Slide no. 18: Moving Out - Pisa by FaceMePLS is licensed under CC BY-2.0 via Wikimedia Commons.
Slide no. 31: taxes by Luis Prado is licensed under CC BY 3.0 via The Noun Project.
Slide no. 31: Dividend by parkjisun is licensed under CC BY 3.0 via The Noun Project.
Slide no. 61 to 65: finger heart by Jhonatan is licensed under CC BY 3.0 via The Noun Project.
Slide no. 61 to 65: thumbs down by GraphiteSword is licensed under CC BY 3.0 via The Noun Project.
51
Bibliography
Mankiw, N. Gregory. Principles of Economics. 6th ed. Mason, Ohio: South-Western Cengage Learning , 2012.
McConnell, Campbell R, Stanley L Brue, and Sean M Flynn. Economics: Principles, Problems, and Policies. New York,
New York: McGraw-Hill/Irwin, 2009.
Greenlaw, Steven A, and Timothy Taylor. “Demand and Supply at Work in Labor Markets.” In Principles of Economics,
4–1. Houston, Texas: OpenStax, 2017. https://openstax.org/books/principles-economics/pages/4-1-demand-
and-supply-at-work-in-labor-markets.
52

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Factors Affecting Demand

● Preference is the order of an individual’s choices

● Demand for newer phone models shifts to the

● An increase in the number of buyers in the market

● A reduction in the number of buyers in the market

● But for the towns they

Demand can also

● If demand for a good that expereinces an increase

● Inferior goods are goods and services whose

○ Goods that are demanded or consumed in place

○ When the price of one good increases, the

○ Goods that are demanded or consumed along

○ When the price of one good increases, the

○ Are goods where the demand is independent of

○ When the price of one good increases or

Expectations for a future price increase will influence the

When the demand curve shifts

When the demand shifts to the

● Higher costs means lower

● If the cost of production

● Taxes are compulsory

● Subsidies an amount of money

● If the price of one good is high in the market, it

● But if the price of the other good is higher, the

● When there are more producers, the overall

● When there are less producers, the overall supply

● Expectations about a product's future price affect

● However, it isn't easy to predict how producers will

● Producers can withhold some products to reap

● Producers can expand their production and make

When the supply curve shifts to

When the supply shifts to the

● Labor demand is the

● When wages increase,

● Labor supply is the

● When wages are lower,

The amount of labor that is being hired at the

● Labor shortage happens

● Labor surplus is when

● Minimum wages are price floors for labor.

● These are imposed based on the required level of

● Wages are known to be sticky, or resistant to a decline

● Demand for output

● When the demand for goods increases, producers

● When the demand for goods decreases, producers

The tools of digital

● When more companies are producing a product, it

● And if fewer companies are producing, it

● When government regulation requires colleges

● Likewise, there will be a decrease in labor demand

When people are

● The government may support, or even require,

● The government may subsidize education and

An increased number of workers will cause a

3. If the consumption of a good or demand

4. Complements are goods that can be used

5. Technology can act as a substitute by

6. Substitutes are goods that can be used