You're in the cereal aisle of a grocery store.

You go to
grab a box of your favorite cereal, but realize they are all
out. You see the label where they normally are and
notice that they are on sale for ₱80.00. You look at the
surrounding labels and notice all the other cereal boxes
are over ₱100.00.
QUESTION:
1. Why it is that the cereal on sale is already out
of stock?
BASIC PRINCIPLES
OF DEMAND AND
SUPPLY
 OBJECTIVES
At the end of this chapter, the student’s should be able
to:
1.Explain and discuss the law of supply and demands.
2.Identify factors and determinants that affect demand and
supply.
3.Illustrate how equilibrium price and quantity are
determined through exercises/solving.
4.Understand how supply and demand affects households
and individuals.
DEMAND - is the willingness of a
consumer to buy a commodity at
a given price

Equation:
Qd = f (P)
Table 2.1 Hypothetical Demand Schedule of Martha for
Vinegar (in bottles)

Price per Bottle Number of Bottles

₱0 6
2 5
4 4
6 3
8 2
10 1
QUESTION
WHAT IS THE
RELATIONSHIP BETWEEN
THE PRICE OF A GOOD AND
THE QUANTITY DEMANDED
FOR THAT GOOD?
LAW OF DEMAND

There is an inverse relationship between t price

of good and the quantity demanded for that good.
As price increases, the quantity demanded
for that product decreases.
REMEMBER this:
 The negative slope of the
demand curve is due to
income and substitution
effects.
INCOME EFFECT -Change in price of a
good changes consumer's real income or
purchasing power, which is the capacity
to buy with a given income.
SUBSTITUTION EFFECT - Change in
price of a good changes demand due to
alternative consumption of substitute
goods.
 WHAT A TERM?

Ceteris Paribus
CETERIS PARIBUS
means all related
variables are held
constant.
Non - Price Determinants
1. Income
2. Taste
3. Expectations
4. Prices of related goods
5. Population
SUPPLY - refers to the quantity
of goods that a seller is willing to
offer.

Function:
Qs = 100 + 5P
Table 2.2: 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
LAW OF SUPPLY

There is a direct relationship between the

price of a goodand the quantity supplied of that
good.
As the price increases, the quantity
supplied of that product also increases.
 MARKET EQUILIBRIUM

Equilibrium - is a state of balance when demand is equal

to supply.

- The quantity that sellers are willing to sell is

also the quantity the buyers are willing to
buy for a price.
HOW TO DETERMINE MARKET
EQUILIBRIUM?
Example:
Assuming that the demand function for Good X is: Qd = 60 - P/2 and the supply
function for Good X is: Qs = 5 + 5P.
PRICE DEMAND SCHEDULE SUPPLY SCHEDULE OF
FOR GOOD X GOOD X
₱0
2
4
6
8
10
12
14
16
 GUIDE QUESTIONS?
1.Where do you spend the biggest part of the household
income?
2.What are the factors you need to consider in purchasing
products?
3.How does increase in price affects their purchasing power?