LESSON 4:

REVIEW OF MARKET
ANALYSIS
DEMAND
• Demand - refers to the amount of goods and
services consumers are willing to purchase given
a certain price.
• If the price of the good is low, the quantity
demanded for that good is high, considering
that other factors that might affect the
willingness of buyers to purchase the good are
held constant.
• There is an inverse
relationship between
price and quantity
because a decrease in QUA
price makes a product NTIT PR QUA
PR Y
IC NTIT
attractive to IC
DEM Y

consumers, while a
AND
ED
E DEM
E AND
price increase makes a ED

product less attractive

to consumers.
 DEMAND
SCHEDULE

DEMAND
DEMAND DEMAND
FUNCTION CURVE
DEMAND FUNCTION
• A mathematical equation that shows the relationship
of price and Qd.

Qd = a - bP
a − 𝑄𝑑
𝑃=
𝑏
 KUNG SAAN ANG:
• Qd = Quantity
Demanded
• a = Quantity of demand
Qd = a - bP if the price is zero
(horizontal intercept)
• (-b) = slope of demand
function
• P = Price
 Qd = 60 - 10P

Quantity of demand if the

Slope of demand function
price is zero
 Qd = 60 - 10P

How many candies will be bought if the price

is 5.00 pesos?
Qd = 60 – 10(5)
Qd = 60 – 50
Qd = 10
SLOPE OF THE DEMAND CURVE
• The formula for the slope of Demand is:

D = Change in P D = P2 –P1
Change in Q Q2-Q1

• Where P1 is the initial price and Q1 is the quantity of the

product, and P2 is the final price and Q2 is the final quantity
of the product.
EXAMPLE:
• Slopes of Point A and B.
D = 60-80
100-0
D = -20
100
D =/-0.2/ or 0.2
PRICE ELASTICITY OF DEMAND
• The negative value of the Ep = %Change in Qd
slope explains the inverse %Change in P
relationship of price and
quantity demanded. Ep = Q2-Q1
• The price elasticity of
demand determines Q1+Q2__
whether the demand curve P2-P1
is steep or flat. P1+P2
• Unit Elastic Demand Curve - Ep = /-1/ or 1
• Relatively Inelastic Demand Curve – Ep = < 1
(Less than 1)
• Relatively Elastic Demand Curve – Ep > 1
(Greater then 1)
• Perfectly Elastic Demand – Slope = Infinity
• Perfectly Inelastic Demand - Slope = 0
SHIFT IN DEMAND AND ITS
DETERMINANTS
• Quantity demanded is dictated by a change in price.
• However, there are also other factors that influence
demand.
• There are cases when the demand curve shifts either
to the right or to the left.
• A demand shift indicates an entirely different demand
schedule.
1. INCOME
• Most of the time, an increase in income
yields an increase in demand for certain
goods.
• We call these "normal goods.“ There are
also what are considered luxury and basic
goods.
• For example, if your income increased by 20%
and you increased your consumption for meat by
50%, then meat for this consumer is luxury-
normal.
• Given the same example, an increase in income
by 20% and you increased your consumption for
rice by 20%, then rice for this consumer is basic-
normal.
• For some goods, an increase in income yields a
decrease in consumption, which means the
consumer tends to give up this good to get a
preferred good.
• The goods that are given up are called "inferior
goods."
• For example, your income increases by 10% and
your consumption of dried fish or "tuyo"
decreased by 50% because you replaced it with
meat.
2. TASTE AND PREFERENCES
• A change in tastes and preferences can shift the
demand curve to the right.
• An example is when you prefer chocolates and roses
on Valentine's Day. All things being constant, the
demand curve for these goods will shift to the right.
3. PRICE OF RELATED GOODS LIKE
SUBSTITUTES AND COMPLEMENTS
• Let us say that A and B are substitutes and price of A
increases, quantity demanded for B will increase.
• If price of good A decreases, then quantity demanded
for B decreases.
• Let us say that A and B complements, and price of A
increased, then quantity demanded for B will
decrease.
4. CHANGES IN SPECULATIONS
• Consumers' speculations determine changes in
demand.
• The H1N1 flu virus caused people to purchase flu
vaccines.
• If the spread of the disease was abated, the demand
for the vaccines would also decrease.
• In this case, the demand curve would shift to the left.
5. POPULATION
• Like income, population size also influences
demand.
• Population growth means an increase in the size of
the market demand, and a decline in population
means a decrease in demand.
• For example, an increase in the number of families
in Metro Manila results in greater demand for
goods, like bread, even if the prices do not change.
SUPPLY
• Supply centers on the relationship between
price and quantity supplied.
• All things being constant, supply refers to the
willingness of sellers to produce and sell a good
at various possible prices.
• Since producers or
sellers seek more
profit, we can say
that based on the PR SU
Law of Supply, the PR SU IC PP
price and quantity IC PP E LY
supplied have a E LY
direct relationship.
• This means that if the price of a particular good
is high, the quantity supplied or the amount
that producers would be willing to sell will also
be high, considering all other factors being
constant.
 SUPPLY
SCHEDULE

SUPPLY
SUPPLY SUPPLY
FUNCTION CURVE
SUPPLY FUNCTION
• A mathematical equation that shows the relationship
of price and Quantity Supplied.

Qs = - a + bP
a +𝑄𝑑
𝑃=
𝑏
 KUNG SAAN ANG:
• Qs = Quantity Supplied
• (-a) = Quantity
supplied if the price is
Qs = -a + bP 0 (horizontal intercept)
• b = slope of demand
function
• P = price
 Qs = -100 + 10P

How many Qs if the price is 15 pesos?

Qs = –100 + 10(15)
Qs = -100 + 150
Qs = 50
SLOPE OF THE SUPPLY CURVE
• The formula for the slope of Demand is:

D = Change in P D = P2 – P1
Change in Q Q2 - Q1
EXAMPLE:
• Slopes of Point F and G.
D = 40 - 20
200 – 100
D = 20
100
D = 0.2
• Unit Elastic Supply Curve - Eps = 1
• Relatively Inelastic Supply Curve – Eps = < 1
(Less than 1)
• Relatively Elastic Supply Curve – Eps > 1
(Greater then 1)
• Perfectly Elastic Supply – Slope = Infinity
• Perfectly Inelastic Siupply - Slope = 0
SHIFT IN SUPPLY AND ITS
DETERMINANTS
• Quantity supplied is dictated by a change in
price.
• However, there are also other factors that
influence Supply.
• There are cases when the Supply curve shifts
either to the left or to the right.
1. PRICES OF INPUTS OR COST OF
PRODUCING THE GOOD.
• If the price of one or more input decreases, the
supply curve shifts to the right because it is
cheaper to produce the said product.
• Ten years ago, SIM cards cost around 1,500 but
they now cost less than 50 because of cheaper
input costs.
2. TECHNOLOGY
• Efficient production through the use of state-of-the-
art equipment shifts the supply curve to the right
because of an increase in output.
• For example, during the 1980s a printing press can
produce calling cards at around 1 to 2 each depending
on the colors used.
• A "typeset" was used and the blank cards were
put in manually by the operator one by one until
the entire set is a computer and a own finished.
• Today, you can print out your printer which is
very cheap because the process calling cards
using is done faster and more efficiently.
3. TAXES AND SUBSIDIES
• Sin taxes add to the cost of producing cigarettes, spirits
and liquors, which will shift the supply curve to the left.
• On the other hand, subsidies and tax exemptions shift
the supply curve to the right.
• For example, it is more expensive to smoke cigarettes
in Singapore than in the Philippines because Singapore
has stricter laws on health and cleanliness, which make
their cigarettes more expensive.
4. NUMBER OF SELLERS OR FIRMS IN
THE INDUSTRY
• If firms decide to increase their size or add
more stores or outlets, then this will, in the
long run, shift the supply curve to the right.
• Examples of these are food stalls which are
now considered a "fad."
• There was an increase in the popularity of food
like shawarma and milk tea and people lined up
to get a taste of these products.
• As a result, entrepreneurs began to increase the
number of stalls to provide the product to those
who are curious and interested in trying it.
 DETERMINING
EQUILIBRIUM POINT
(PRICE EQUILIBRIUM)
 EQUILIBRIUM POINT
• The equilibrium
price is where the
supply of goods
matches demand.
LAW OF SUPPLY AND DEMAND
•If the demand is high and the supply
is low, therefore, the price will
increase.
•If the demand is low and the supply
is high, therefore, the price will
decrease.
 DEM SUP
SUP AND PLY DEM
PLY AND
• Shortage – occurs P
when the quantity
demanded exceeds
D
the quantity supplied. S
• Surplus – occurs
when quantity P
supplied exceeds S
quantity demanded. D
EXAMPLE OF EQULIBRIUM POINT:
• Let us use the demand function Qd = 250 – 3P
and the supply function Qs = -250 + 7P.
• To determine the price equilibrium, let us use
the formula Qd = Qs.
• Combine the dependent and independent
variables of the two functions.
 Qd = Qs
250 – 3P = -250 + 7P
250 + 250 = 7P + 3P
500 = 10P
500/10P
P = 50
MARKET SCHEDULE:
Qd Price Qs
130 40 30
115 45 65
100 50 100
85 55 135
70 60 170
MARKET CURVE:
DEMAND/SUPPLY
60

55
PRESYO

50

45

40
30 65 70 85 100 115 130 135 170
Qd/Qs