THINK ABOUT THIS

When you ask about the

cost of a good or
service, you’re really
asking how much you
will have to give up in
COMMODITIES
- Essential
factors in the
production of
other goods.
COST
- What the business
pays to make it.
PRICE
- money someone
charges for a good
or service.
VALUE
- The degree of
importance you
give to something.
MARKET
- An interaction
between buyers and
sellers of trading or
exchange.
MARKET
- where the
consumers buys
and the seller sells.
GOODS MARKET
- most common type
of market because it
is where we buy
consumers good.
LABOR MARKET
- where workers
offer services and
look for jobs, and
where employers look
for workers to hire.
FINANCIAL MARKET

- Includes the stock

market where
securities of
corporations are
traded.
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 SCHEDULE
Hypothetical Demand Schedule of Martha for Vinegar ( in bottles)

PRICE PER NUMBER OF

BOTTLE BOTTLES
P0 6

2 5

4 4

6 3

8 2

10 1
DEMAND CURVE
- graphical illustration of the
demand schedule, with the
price measured on the
horizontal axis (Y) and the
quantity demanded measured
on the horizontal axis (X)
 DEMAND CURVE
Hypothetical Demand Curve of Martha for Vinegar ( in bottles)

P
R
I
C
E

QUANTITY DEMANDED (IN BOTTLES)

INCOME EFFECT
- is felt when a change in the
price of good changes
consumer’s real income or
purchasing power (capacity to buy with a given income)
SUBSTITUTION EFFECT
- is felt when a change in the
price of good changes
demand due to alternative
consumption of substitute
goods.
THE LAW OF DEMAND
- As price increases , the quantity
demanded for that product
decreases. The low price of the
good motivates the consumer to
buy more. When price increases,
the quantity demanded for the good
decreases.
 NON-PRICE DETERMINANTS OF
DEMAND
- Taste
- Income
- Expectations
- Prices of related goods
- Population (C)
DEMAND FUNCTION:
D=f (P,T,Y,E,PR,NC)
 SHIFTS OF THE DEMAND CURVE

- a movement from one point

to another on that curve
because of the change in the
price of a good.
 SHIFT OF DEMAND
CURVE
P
R
I
C
E

P
e
r

K
I
L
O

QUANTITY (in kgs.)

 SUPPLY
- The quantity of
goods that a seller is
willing to offer for
sale.
 SUPPLY FUNCTION
- shows the
dependence of
supply on the various
determinants that
affect it.
 SUPPLY SCHEDULE
- shows the different
quantities the seller is
willing to sell at
various prices.
DEMAND SCHEDULE
Supply Schedule of Pedro for Fish in One Week

Price of Fish Supply

(per kilo) (In kilos)
P 20 200

40 300

60 400

80 500

100 600
 SUPPLY CURVE
P
R
I
C
E

o
f

F
i
s
h

P
e
r

k
i
l
o
Quantity Supplied ( in hundred Kilos)
 REMEMBER THIS:
UPWARD SLOPE
- As the price
increases, the supply
increases.
 LAW OF SUPPLY
As the price
increases, the
quantity supllied of
that product also
increases.
 NON-PRICE DETERMINANTS

- Cost of production
- Technology
- Availability of raw
materials and
resources
SHIFTS OF THE SUPPLY CURVE

- Movement along
the supply curve.
Reason: change in
the price of the
goods.
SHIFTS OF THE SUPPLY CURVE

- Once supply increases due

to non-price determinant,
the entire supply curve will
SHIFT to the RIGHT to
reflect an INCREASE, or to
the LEFT to reflect a
DECREASE.
DEMAND AND SUPPLY IN RELATION TO
THE PRICES OF BASIC COMMODITIES

MARKET
EQUILIBRIUM
- State of balance
when demand is
EQUAL to supply.
DEMAND AND SUPPLY IN RELATION TO
THE PRICES OF BASIC COMMODITIES

The EQUALITY means that

the QUANTITY that sellers
are willing to sell is also
the quantity that the
buyers are willing to buy
for a price.
EQUILIBRIUM
- Defined as the price-
quantity pair where the
quantity demanded is equal
to the quantity supplied,
represented by the
intersection of the demand
and supply curves.
MARKET EQUILIBRIUM
- Defined as the price-
quantity pair where the
quantity demanded is equal
to the quantity supplied,
represented by the
intersection of the demand
and supply curves.
DEMAND AND SUPPLY SCHEDULE
Demand Schedule Good Supply Schedule of
of Good X X Good X
Price

P0 60 5

2 59 15

4 58 25

6 57 35

8 56 45

10 55 55

12 54 65

14 53 75

16 52 85
DEMAND AND SUPPLY SCHEDULE
Demand PRICE Supply

48 1 24

46 2 28

44 3 32

42 4 36

40 5 40

38 6 44

36 7 48

34 8 52

32 9 56

30 10 60
IMPACTS OF
SUPPLY AND
DEMAND ON
PRICING
The price of good
will be the level
where the quantity
demanded equals
the quantity
supplied.
FOUR BASIC
LAWS OF
SUPPLY AND
DEMAND
If demand increases,
and supply remains
unchanged, then it
leads to higher
equilibrium price and
higher quantity.
If demand decreases,
and supply remains
unchanged, then it
leads to lower
equilibrium price and
lower quantity.
If supply increases and
demand remains
unchanged, then it
leads to lower
equilibrium price and
higher quantity.
If supply idecreases
and demand remains
unchanged, then it
leads to higher
equilibrium price and
lower quantity.