Professional Documents
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Notes: 007-10
Vic Byron D. Zarate
Demand is the expression in the market of
the cumulative willingness of all consumers
to buy various amounts of product at various
prices
-It is the schedule of various quantities
of commodity which buyers are willing and
able to purchase at a given time, price, and
place
Factors that determines Demand
-Income
-Given price
-Population
-Price of related goods
-Taste
-Preference
-Price expectation -technology
In general, consumers most likely buy more
goods and services as price decreases law
of demand states that As price increases
the demand decreases and increases as the
price decreases
Demand Curve depicts demand in a
graph, with the price of goods on the vertical
axis and the quantity of the goods demanded
per unit time on the horizontal axis.
Demand Schedule Is a list reporting the
amount of good demanded per unit time in a
market at various prices.
Demand function A mathematical that
explains the demand
2
1.75
1.5
1.25
1
0.75
0.5
0.25
0
0
4
3.5
3
2.5
2
1.5
1
0.5
0
0
200
400
600
800
1000
4. Recreation
5. Transportation/ Communication
6.Furnishing/ Equipments
B. Second Priority Items
1. Shelter
2. Personal Care Products
3. Clothing
4. Housekeeping Items
5. Medical care Products
6. Special occasions
C. Third Priority Items
1. Tobacco
2. Utilities
3. Food
4. Alcohol Beverages
Ernest Engel Hypothesis If the income of
an individual or a family increases the
demand for food increases at a slower rate
2. Inelastic Demand A condition when a
change in price result in a lesser change in
quantity demanded, When price elasticity is
less than one, it is said to be inelastic e.g.
Gas, Electricity, LPG, etc.
- Price and Total revenue change in the same
direction, As Price increases same with Total
Revenue
P
R
I
C
E
Quantity
3. Unitary Demand A change in price
correspondingly result in a equal change in
quantity demand
P
R
I
C
E
Quantity
4. Perfectly elastic demand without change
in price there is an infinite change in quantity
demand
P
R
I
C
E
Quantity
5. Perfectly inelastic demand A change in
price creates no change in quantity
demanded
P
R
I
C
E
Quantity
Determinants of Demand/ Demand
Shifters
1. Taste The consumers preference for the
new product, the product is more desirable .
- increase of demand will shift the
demand curve towards the right and
decrease will shift towards the lift
2. Number of Buyers Consumers will
eventually determine the demand, a
community with increase population will
increase the demand
3. Income Determines the purchasing
power of the consumer, Rise in income will
increase the demand
Normal good Commodities whose demand
varies directly due to the change of income.
aka Superior good
Inferior good Commodities whose
demand varies inversely due to the change
of income
4. Price of Related good because of
Substitution of product then there will be
also changes that may occur subject to
change of the primary good
- Substitute-one that can be used in
place of another good. When two products
are substitutes, the price of one and the
demand for the other move in the same
direction. eg. Nike and Reebok; Honda and
Toyota, Cola A and Cola B
- Complements-Are goods that are use
together with another good (They are usually
demanded together) E.g. Cameras and film,
Device and Gadgets, Tuition fees and
Textbooks
- Unrelated goods-A change of price of
one good does not affect the other. E.g.
Effect of the rise of vegetables with playing
Quantity 1,000
1020
What is the quantity demand from point A to
point B in the graph?
E = % Change in quantity demanded /
%change in price
E = 100(1020-1000)/1000 = 2 = -2
100(198-200)/ 100
-1
Interpretation : In 1% fall of the price of the
commodity there is 2% rise on the demand
quantity
p 10
r
i
c
e
5
5
10
Quantity
If point A is 9 and point B is 4 with the
quantity of 3.5 and 6.5 respectively what will
be the elasticity of demand from point A to
point B
E = % Q = 100(Q2-Q1)/Q1
% Q 100 (P2-P1)/P1
E = 100(3.5-6.5)/6.5 =- 46.15
=2.7
100(9-4)/4= 125
: 46.15% change of price (decrease) in price
will have 125% increase in the quantity
Given: Crude oil as the major transport
commodity has the following demand
schedule
45
40
35
30
25
20
15
2000 2500 3000 3500 4000 4500
5000 5500 6000
Price Demand(by 1000)
24
5,898
28
5,260
30
4,678
32
4,150
34
4,000
36
3,680
38
3,457
Questions: Plot the schedule on a graph
: What type of demand is illustrated
: What is the elasticity of Demand
from P4-P5
: Interpret your solution
Problems: A certain business has the
following demand schedule, Complete the
table below by computing the % change of
price and quantity from every change of
price
5pts.
5pts.
5pt.
Price
Quantit %chan
%chan
Elastici
y
ge
ge
ty
Price
8
22
9
24
10
23
11
20
12
15
13
10
14
8
Interpret your graph (5pts.)
Quantit
y
Deman
d
P3
P2
Surplus
Demand
Equilibrium
Shortage
10
P1
10
20
30
40
50
Quantity supplied Q1
Q2
Q3
The graph may show the following
: At market price P1, Quantity supplied is Q1
: At market price P2, Quantity supplied is Q2
: At market price P3, Quantity supplied is Q3
Effects of price
: If price falls from P2-P1, Quantity supplied
will fall from Q2-Q1: a lower quantity will be
supplied
: If price rises up from P1-P3, quantity supply
will rise from Q1-Q3: Quantity supplied will
be higher
Quantity
Profit difference between total revenue
from the sale of goods and services and the
total cost incurred in producing and selling
these goods and services.
Profit = Total Revenue (TR) Total Cost(TC)
Therefore: With TC Constant; Increase TR
: With TR constant; decrease TC
: Increase TR; decrease TC = Increase
Profit
Mark up Fixed Profit
Price of a commodity = Mark-up + Average
cost
Total profit = Profit per unit x Total quantity
sold
Application: