Maria Daniella Villondo

11- Ezekiel

December 2, 2016
ABM001

DEFINE THE FOLLOWING TERMS :

MARKET
A market is any place where the sellers of a particular good or service can meet with the buyers of
that goods and service where there is a potential for a transaction to take place. The buyers must
have something they can offer in exchange for there to be a potential transaction. There are two
main types of markets- markets for goods and services and markets for the factors of production.
Markets can be classified as perfectly competitive, imperfectly competitive, monopolies, and so
on, depending on their features.
DEMAND
Demand in economics is how many goods and services are bought at various prices during a certain
period of time. Demand is the consumer's need or desire to own the product or experience the service.
It's constrained by the willingness and ability of the consumer to pay for the good or service at the
price offered.
Demand is the underlying force that drives everything in the economy. Fortunately for economics,
people are never satisfied.
They always want more. This drives economic growth and expansion. Without demand, no business
would ever bother producing anything.
DEMAND FUNCTION
A demand function that represents the behavior of buyers, can be constructed for an individual or
a group of buyers in a market. The market demand function is the horizontal summation of the
individuals' demand functions. In models of firm behavior, the demand for a firm's product can be
constructed.
The nature of the "demand function" depends on the nature of the good considered and the
relationship being modeled. In most cases the demand relationship is based on an inverse or
negative relationship between the price and quantity of a good purchased. The demand for purely
competitive firm's output is usually depicted as horizontal (or perfectly elastic). In rare cases,
under extreme conditions, a "Giffen good" may result in a positively sloped demand function.
These Giffen goods rarely occur.
It is important to identify the nature of the "demand function" being considered.

 DEMAND CURVE
If you were to plot out how many units you would buy at different prices, then you've created
a demand curve. It graphically portrays the data in a demand schedule. When the demand curve is
relatively flat, then people will buy a lot more even if the price changes just a little. When the
demand curve is fairly steep, than the quantity demanded doesn't change much, even though the
price does.
CETERIS PARIBUS
This commonly-used phrase stands for 'all other things being unchanged or constant'. It is used in
economics to rule out the possibility of 'other' factors changing, i.e. the specific causal relation
between two variables is focused.
This Latin phrase is generally used for saying 'with other things being the same'. It is particularly
crucial in the study of cause and effect relationship between two specific variables such that other
relevant factors influencing these are assumed to be constant by the assumption of Ceteris Paribus.

Supply
Supply is a fundamental economic concept that describes the total amount of a specific good or
service that is available to consumers. Supply can relate to the amount available at a specific price
or the amount available across a range of prices if displayed on a graph. This relates closely to
the demand for a good or service at a specific price; all else being equal, the supply provided by
producers will rise if the price rises because all firms look to maximize profits.

STATE THE FOLLOWING :

1. LAW OF DEMAND
The law of demand is a microeconomic law that states, all other factors being equal, as the price of
a good or service increases, consumer demand for the good or service will decrease, and vice
versa. The law of demand says that the higher the price, the lower the quantity demanded, because
consumers opportunity cost to acquire that good or service increases, and they must make more
tradeoffs
to
acquire
the
more
expensive
product.
The chart below depicts the law of demand using a demand curve, which is always downward sloping.
Each point on the curve (A, B, C) reflects a direct correlation between quantity demanded (Q) and price
(P). So, at point A, the quantity demanded will be Q1 and the price will be P1, and so on.

The law of demand is so intuitive that you may not even be aware of all the examples around you.
-When shirts go on sale, you might buy three instead of one. The quantity that you demand increases
because the price has fallen.
-When plane tickets become more expensive, youre less likely to travel by air and more likely to choose
the less expensive options of driving or staying home. The amount of plane tickets that you demand
decreases to zero because the cost has gone up.
The law of demand summarizes the effect price changes have on consumer behavior. For example, a
consumer will purchase more pizzas if the price of pizza falls. The opposite is true if the price of pizza

increases. John might demand 10 pizzas if they cost $10 each, but only 7 pizzas if the price rises to $12,
and only 4 pizzas if the price rises to $20.
The law of demand is one of the most fundamental concepts in economics. It works with the law of
supply to explain how market economies allocate resources and determine the prices of goods and
services.

2. LAW OF SUPPLY
The law of supply is the microeconomic law that states that, all other factors being equal, as the price of a
good or service increases, the quantity of goods or services that suppliers offer will increase, and vice
versa. The law of supply says that as the price of an item goes up, suppliers will attempt to maximize their
profits
by
increasing
the
quantity
offered
for
sale.
The chart below depicts the law of supply using a supply curve, which is always upward sloping. A, B and
C are points on the supply curve. Each point on the curve reflects a direct correlation between quantity
supplied (Q) and price (P). So, at point A, the quantity supplied will be Q1 and the price will be P1, and
so
on.

The law of supply is so intuitive that you may not even be aware of all the examples around you.
-When college students learn computer engineering jobs pay more than English professor jobs, the supply
of students with majors in computer engineering will increase.
-When consumers start paying more for cupcakes than for donuts, bakeries will increase their output of
cupcakes and reduce their output of donuts in order to increase their profits.

-When your employer pays time and a half for overtime, the number of hours you are willing to supply for
work increases.
The law of supply summarizes the effect price changes have on producer behavior. For example, a
business will make more video game systems if the price of those systems increases. The opposite is true
if the price of video game systems decreases. The company might supply 1,000,000 systems if the price is
$200 each, but if the price increases to $300, they might supply 1,500,000 systems.
The law of supply is one of the most fundamental concepts in economics. It works with the law of
demand to explain how market economies allocate resources and determine the prices of goods and
services.

3. NON- PRICE DETERMINANTS OF DEMAND

Changes in the determinants of demand will cause the shift of the demand curve. Price normally demands
the demand of goods and services.
However, there are some major non-price determinants of demand which include the following:
1.

Consumer tastes/preference
If consumers preference/tastes are more favorable to certain products, there will be an increase in
the demand for that product.

2.

Number of buyers in the market

If the number of buyers in the market increases as a result of population growth, there will be an
increase in the demand for the goods and services.

3.

Buyers income
If income of the buyers increases, there will be an increase in the demand for goods and services.
However, in the cases of inferior products an increase in income will lead to a decrease in demand
and vice versa.

4. Seasonal factors.
During a particular season say a rainy season there tend to have higher demand for umbrellas,
raincoats as compared to other times during the year.
5.

Consumer expectations of future prices and income

Consumer expectation is important to determine changes in demand. If people expect the price of
product X to increase, there will be more demand for that product now. If people expect income
level to increase, demand will also increase and vice versa.
6.

Prices of related goods

Prices of related goods also affect demand. For substitute goods, price and demand are directly
related to one another. For example, if there is an increase in the natural rubber then there will then
be a lower demand for synthetic rubber, its substitute.
For complementary goods, the price of one good and the demand for the other are inversely related.
A decrease in petrol price will lead to more frequent use of cars that will increase the demand for
petrol and engine oil, its complements.

DETERMINANTS OF SUPPLY

Determinants of supply (also known as factors affecting supply) are the factors which influence the quantity
of a product or service supplied. We have already learned that price is a major factor affecting the willingness
and ability to supply. Here we will discuss the determinants of supply other than price. These are the factors
which are assumed to be constant in law of supply.
The price change of a product causes the price-quantity combination to move along the supply curve.
However when the other determinants change, the supply curve is shifted.
Following are the major determinants of supply other than price:

Number of Sellers
Greater the number of sellers, greater will be the quantity of a product or service supplied in a market and
vice versa. Thus increase in number of sellers will increase supply and shift the supply curve rightwards
whereas decrease in number of sellers will decrease the supply and shift the supply curve leftwards. For
example, when more firms enter an industry, the number of sellers increases thus increasing the supply.

Prices of Resources
Increase in resource prices increases the production costs thus shrinking profits and vice versa. Since profit is
a major incentive for producers to supply goods and services, increase in profits increases the supply and
decrease in profits reduces the supply. In other words supply is indirectly proportional to resource prices.
Increase in resource prices reduces the supply and the supply curve is shifted leftwards whereas decrease in

resource prices increases the supply and the supply curve is shifted rightwards.

Taxes and Subsidies

Taxes reduces profits, therefore increase in taxes reduce supply whereas decrease in taxes increase supply.
Subsidies reduce the burden of production costs on suppliers, thus increasing the profits. Therefore increase
in subsidies increase supply and decrease in subsidies decrease supply.

Technology
Improvement in technology enables more efficient production of goods and services. Thus reducing the
production costs and increasing the profits. As a result supply is increased and supply curve is shifted
rightwards. Since technology in general rarely deteriorates, therefore it is needless to say that deterioration of
technology reduces supply.

Suppliers' Expectations
Change in expectations of suppliers about future price of a product or service may affect their current supply.
However, unlike other determinants of supply, the effect of suppliers' expectations on supply is difficult to
generalize. For example when farmers suspect the future price of a crop to increase, they will withhold their
agricultural produce to benefit from higher price thus reducing the supply. In case of manufacturers, when
they expect the future price to increase, they will employ more resources to increase their output and this
may increase current supply as well.

Prices of Related Products

Firms which are able to manufacture related products (such as air conditioners and refrigerators) will the shift
their production to a product the price of which increases substantially related to other related product(s) thus
causing a reduction of supply of the products which were produced before. For example a firm which produces
cricket bats is usually able to manufacture hockey sticks as well. When the price of hockey sticks increases,
the firm will produce more hockey sticks and less cricket bats. As a result, the supply of cricket bats will be
reduced.

Prices of Joint Products

When two or more goods are produced in a joint process and the price of any of the product increases, the
supply of all the joint products will be increased and vice versa. For example, increase in price of meat will
increase the supply of leather.

REFERENCES:
http://economics.about.com/cs/economicsglossary/g/market.htm

http://www.investopedia.com/terms/d/demand.asp
https://www.thebalance.com/what-is-demand-definition-explanation-effect-3305708
http://economictimes.indiatimes.com/definition/ceteris-paribus
https://www.thebalance.com/law-of-demand-definition-explained-examples-3305707