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SOME TERMS TO REMEMBER 60 40

➢ Market- a place where buyer and sellers 50 60


interact and engage in exchange.
40 80
➢ Demand- reflects the consumer’s desire for a
commodity. 30 100
➢ Supply- the amount of a commodity available
for sale.
➢ Aggregate demand- the totality of a group
DEMAND in MATH’L
of consumer’s demand. LANG
➢ Aggregate supply- the totality of a group of Qd=160 – 2P
consumer’s supply. Qd=160-2(50)
➢ Supply schedule- the quantities producers Qd=160-100
Qd = 60
are willing to offer for sale at various prices
➢ Demand schedule- the quantities consumers
are willing to buy of a good at various prices.
➢ Movement along the curve- a change from
one point to another on the same curve.
➢ Shift of the curve- a change in the entire
curve caused by a change in the entire SHIFTS IN THE DEMAND CURVE
demand or supply schedule. • Increase income – to the right
➢ Non-price factors/parameters- are factors • Decrease in income – to the left
other than price that also affect demand or • Greater taste/preference – to the right
supply • Less taste/preference – to the left
• Increase in population – to the right
➢ Demand function- shows how quantity
• Decrease in population – to the left
demanded is dependent on its determinants. • Greater speculation – to the right
➢ Supply function- shows how quantity • Less speculation – to the left
supplied is dependent on its determinants.
➢ Equilibrium- condition of balance or equality SUPPLY
DEMAND ✔ Quantity that sellers are willing to sell.
✔ Quantity that the buyers are willing to buy ✔ Is the amount of some product producers
are willing and able to sell at a given price
✔ is the desire to own anything, the ability to
all other factors being held constant.
pay and the willingness to pay for it
LAW OF DEMAND LAW OF SUPPLY
✔ As price increases, demand decreases ✔ As price increases, quantity supplied to
✔ as price decreases, demand increases increase.
✔ As price decreases, quantity supplied
Ceteris Paribus Assumption instead decreases.
“Ceteris Paribus”- with all other things are held
FACTORS INFLUENCING SUPPLY
constant. • Cost of production
• Availability of economic resources
DETERMINANTS OF DEMAND • Number of firms in the market
• tastes or preferences of consumers. • Techniques of production (technology)
• level of consumer income. • Producer’s goals
• prices of related goods.
• buyer’s expectations about future prices such SUPPLY SCHEDULE
as substitutes and complements
PRICE Qty
• population: size and age composition.
SUPPLY
PRICE OF QUANTIT DEPENDENT VARIABLE=Qd &
Qs 20 0
ONION (per Y (Quantity demand & Quantity
kilo) DEMAND 30 20

80 0 40 40

70 20 50 60
60 80

70 100

SUPPLY in MATHEMATICAL LANGAUGE


Qs= -40+2y
DEMAND AND SUPPLY CURVE
Qs= -40 + 2(50)
Qs= -40 + 100
Qs = 60 Pt of

SHIFTS IN THE SUPPLY CURVE


• Increase in number of sellers – to the right
• Decrease in number of sellers – to the left
• Better technology – to the right
• Increase in cost of production – to the right Supply and Demand: An Application
• Decrease in cost of production – to the left • If the demand for a commodity is greater than
• Goals of the firm – it depends the available supply, the price increases.
MARKET EQUILIBRIUM • If the supply decreases, suppliers with too much
✔ Is obtained at the point where demand is stock on hand would be “forced” to unload that
equal to supply. commodity even at low prices.
✔ Alfred Marshal – was the economist who ELASTICITY
brings the idea to combine the law of • The degree to which a demand or supply curve
demand and supply. reacts to a change in price.
✔ The point of equilibrium is subject to DEGREES OF ELASTICITY
change. • ELASTIC– when a change in a determinant
✔ Shifts in either the demand curve alone, or leads to a proportionately greater change in
the supply curve alone, or in both curves quantity of demand for supply. E>1
at the same time can cause a change in • INELASTIC – when a change in a determinant
equilibrium point. results in a proportionately lesser change in
the quantity of demand or supply. E<1
MARKET EQUILIBRIUM IN MATHEMATICAL • UNITARY – when a change in a determinant
LANGUAGE leads to a proportionately equal change in the
MEP = Qd = Qs MEQ = Qd = Qs quantity of demand or supply. E=1
Qd=160-2P Qd=160-2P
Qs= - 40 + 2P Qd=160-2(50) TYPES OF GOODS
160-2P = - 40+2P Qd=60  Complementary goods – goods which
-2P-2P = - 40-160 Qs= - 40+2P are used together.
- 4P = -200 Qs= - 40+2(50)  Substitute good – good that can be used
-4 -4 Qs=60 to satisfy the same needs.
MEP = 50 MEQ=60  Normal goods – goods for which
consumers' demand increases with an
increase in income.
Qty PRICE(P Qty  Inferior goods – goods for which the
Demand HP) Supply demand decreases when consumer income
0 80 120 falls.
20 70 100
40 60 80 TYPES OF ELASTICITY OF DEMAND
60 50 60 • PRICE ELASTICITY OF DEMAND – the study of
80 40 40 the responsiveness of demand to changes in
100 30 20 the price of the good.
120 20 0 • INCOME ELASTICITY OF DEMAND – the study of
the responsiveness of demand to a change in
DEMAND AND SUPPLY SCHEDULE consumer income.
• CROSS ELASTICITY OF DEMAND – relates a
percentage change in the demand for a good
with a percentage change in the price of
another good.
PRICE ELASTICITY OF SUPPLY – compares a
percentage in the quantity supplied with a
percentage change in the price of the good.

Q2-Q1 _
PRICE ELASTICITY
Q1+Q2
% Q 2 % change in
ep =
% P = =
quantity
P2-P1 _ % change in price
P1+P2
2
INCOME ELASTICITY OF DEMAND
Q2-Q1
Q1+Q2 Qd = quantity
2 demand
Y2 + Y1 Y = income
Y1+Y2
2

CROSS ELASTICITY OF SUPPLY


QX2 – Qx1 PY2 – PY1
ec =QX2 + Qx1 ÷PY2 + PY1