Topic 3: Demand and Supply Flashcards
It refers to the number or amount of goods and services desired by the consumers at various prices in a particular period of time.
Demand
The amount of goods or services are willing and able to buy/purchase at a given price, place, and a period of time.
Quantity demanded
Law of Demand
States that as price increases, quantity demanded decreases; and as price decreases, quantity demanded increases (if other factors remain constant).
Determinants of Demand
- Consumer’s income
- Consumers’ Expectations of Future Prices
- Prices of Related Products
- Consumer Tastes and Preferences
- Population
- Price
Goods that can be used in place of other goods.
Substitute Products
Goods that cannot be used without the other.
Complementary Goods
Determinant: Affected by religion, culture, traditions, age, trend, technology, and many more.
Consumer Tastes and Preferences.
Determinant: Increase in this means more demand for goods and services.
Population
Determinant: Demand for any particular good will be affected by changes in the ___________.
Prices of Related Products
Determinant: For example, expected increase in the price of gasoline causes panic buying for car owners to maximize the purchasing power of their money.
Consumers’ Expectations of Future Prices
Type of Goods: For example, basic necessities such as rice, utilities, medical and dental services.
Normal good
Type of Goods: For example, public transportation, reduces the consumption of public utility instead they tend to drive their own car.
Inferior good
Type of Goods: Demand increases when income increases and vice versa
Normal good
Type of Goods: Demand falls when income rises and vice versa.
Inferior good
Representation of the relationship between demand and its determinants expressed using mathematical language.
Demand Function
Demand function can be written as follows if all determinants except price are kept constant. (Linear Equation)
Qd = a – bP + e
Shows the tabular representation of the relationship between quantity of a good demanded and the price of that good.
Demand Schedule
Shows graphically the relationship between the quantity of a good demanded and its corresponding price, with other variables held constant.
Demand Curve
Shifting from one demand curve to another. Brought by the changes in the non-price determinants of demand.
Change in Demand
Shifting from one demand curve to another. Brought by
The changes in the non-price determinants of demand.
Change in the price of goods and services. Movement along a demand curve.
Change in Quantity Demanded
Movement along a demand curve. Brought by
Change in the price of goods and services.
Defined as the maximum units/quantity of goods and services producers can offer.
Supply
It refers to the amount or quantity of goods and services producers are willing and able to supply at a given price, at a given period of time.
Quantity supplied
Law of Supply
States that as price increases, quantity supplied also increases; and as price decreases, quantity supplied also decreases.
Determinants of Supply
- Change in technology
- Cost of inputs used
- Expectation of future prices
- Price of related goods
- Government regulation and taxes
- Government subsidies
- Number of firms in the market
Mathematical expression of the
relationship between price and quantity supplied.
Supply Function
A linear equation can also be created using the simplified functional expression. (Supply Equation)
Qs = a+ bP + e
Shows the tabular representation of the relationship between the quantity of a good supplied and its price.
Supply Schedule
Shows the relationship between the quantity of a good supplied and its price, with other variables held constant.
Supply Curve
What will happen when supply and demand intersect?
When demand and supply intersect, it creates equilibrium price and equilibrium quantity, or the market equilibrium.
A condition in the market where the quantity supplied is more than quantity demanded.
Surplus
A condition in the market in which quantity demanded is higher than supplied.
Shortage
It is the legal minimum price imposed by the government.
Floor price
It is the legal maximum price imposed by the government.
Price ceiling
