• LESSON 2.

1 BASIC
PRINCIPLES OF DEMAND AND
SUPPLY
• LESSON2.2 DEMAND AND

CHAPTER 2:
SUPPLY IN RELATION TO THE
PRICES OF BASIC
COMMODITIES

APPLICATION
• LESSON 2.3. ELASTICITIES OF
DEMAND AND SUPPLY
• LESSON 2.4 MARKET

OF DEMAND
STRUCTURES
• LESSON 2.5 SUPPLY- DEMAN
AND THE PHILIPPINE LABOR

AND SUPPLY
MARKET
• LESSON 2.6 SUPPLY-DEMAND
AND THE PHILIPPINE
ECONOMIC PROBLEMS
LESSON 2.1: BASIC
PRINCIPLES OF
DEMAND AND
SUPPLY
 MARKET
• Is an interaction between
buyers and sellers of trading or
exchange. It is where the
consumer buys and the seller
sells.
 GOODS MARKET
• The most common type of
market because it is where we
buy consumers goods.
 LABOR MARKET
• Is where worker offer services
and look for jobs, and where
employers look for workers to
hire.
FINANCIAL MARKET

• It includes the stock market

where securities of corporation
are traded.
• Market are important because it
where the person who has
excess goods can dispose them
to who need them. This
interaction should lead to an
implicit agreement between
buyers and sellers on volume
and price.
 DEMAND
• 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, the most
important of which is the price
of the good itself.
 EQUATION
• Qd= f(P)
• This signifies that the quantity
demanded for a good is
dependent on the price of that
good.
Example:
Demand function: Qd= 6 (P/2)

Hypothetical Demand Schedule of Martha for Vinegar

Price per bottle Number of bottles

₱0 6
2 5
4 4
6 3
8 2
10 1
• There is a negative relationship
between the price of a good and the
quantity demanded for that good.
• A lower price allows the consumer to
buy more, but as price increase, the
amount the consumer can afford to buy
tends to go down.
 DEMAND CURVE
• Is a graphical illustration of the
demand schedule , with the price
measured on the vertical axis (y)
and the quantity demanded
measured on the horizontal axis
(x).
 Hypothetical Demand Curve of Martha for
Vinegar
12

10

PRICE 6

0
0 1 2 3 4 5

QUANTITY DEMANDED (IN BOTTLES)

 INCOME EFFECT
• Is felt when a change in the price
of a good changes consumer’s
real income or purchasing
power , which is the capacity to
buy with a given income.
 SUBSTITUTION
EFFECT
• Is felt when a change in the
price of a good changes
demand due to alternative
consumption of substitute
goods.
 CETERIS PARIBUS
• Latin word means “all else being
equal”.
• It means all other related variables
except those that are being studied
at the moment and are held
constant.
 LAW OF DEMAND
• As price increases, the quantity
demanded for that product
decreases.
 NON-PRICE
DETERMINANTS OF
DEMAND
• These non-price factors include income,
taste, expectations, prices of related goods,
and population. These non-price
determinants can cause an upward or
downward change in the entire demand for
the product and this change is referred to as
shift of the demand curve.
 NON-PRICE
DETERMINANTS OF
DEMAND
• The demand function will now read:
D=f (P,T,Y,E,PR,NC)
P- price
T- taste
Y- income
E- expectations
PR- price of related goods
NC- number of consumers
 SHIFT OF THE DEMAND
CURVE

Price Per Kilo

Quantity (in kgs.)

 SUPPLY
• it refers to the quantity of
goods that seller is willing to
offer for sale.
 SUPPLY
SCHEDULE
• Shows the different quantities
the seller is willing to sell at
various prices.
 SUPPLY
FUNCTION
• Shows the dependence of
supply on the various
determinants that affect it.
• Qs= f(P)
Example:
Supply Function as: Qs=100 t 5P
Supply Schedule of Pedro for Fish in One
Week
Price of Fish (Per Kilo) Supply (in Kilos)

₱20 200

40 300

60 400

80 500

100 600
Example:
When plotted into a graph

Supply Curve of Pedro for Fish in One

Week
120

100

Price of Fish (Per Kilo)

80

60

40

20

0
1 2 3 4 5

Quantity Supplied (in hundred kilos)

 THE LAW OF
SUPPLY
• As the price increases, the quantity
supplied of that of that product also
increases.
• Thus, when the price increases, the
quantity supplied of the good increases
since the seller will take this as an
opportunity to increase his/her income.
 NON- PRICE
DETERMINANTS OF SUPPLY

• These non-price factors are cost of

production, technology, and availability
of raw materials and resources. Theses
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.
 SHIFTS OF THE SUPPLY
CURVE

• There are also movements along and shifts of

the supply curve.
• The supply function will now read as: S= f
(P,C,T,AR)
Where the supply (S), price (P), cost of
production (C), technology (T), and
availability of raw materials and resources
(AR).
Price of Fish (per kilo)

Quantity Supplied (in kilos)