DEMAND is the quantity or total quantity of a goods or services that customers are willing and able to purchase

during a specific period (the time frame might be an hour, a day, a month, a year) under a given set of economic
condition.

Economic conditions to be considered include:

a. The price of the good in question,

b. Prices and availability of related goods,

c. Expectation of price changes,

d. Consumer incomes,

e. Consumer tastes and preferency,

f. Advertising expenditures and so on.

For managerial decision making, a prime focus is on market demand.

Market Demand is the aggregate of individual, or personal demand. Insight into market demand relations
requires an understanding of the nature of individual demand or personal demand.

Individual Demand is determined by the value associated with acquiring and using any good or service and the
ability to acquire it.

▪Both are necessary for effective individual demand.

▪Desire without purchasing power may lead to want but not a demand.

There are two types of Demand:

1. Direct Demand is the demand for products that directly satisfy consumer desires.

~Utility is the value or worth of a good or service. It is the prime determinant of direct demand.

2. Derived Demand is the demand for all inputs. It is determined by the profitability of using various inputs to
produce output.

Market demand function for a product is a statement of the relation between the aggregate quantity demanded
and all factors that affects this quantity.

Quantity of Product X demanded = Q = f(Price of X, Prices of Related Goods, Expectation of Price changes,
Consumer Income, Tastes and Preferences, Advertising Expenditures, and so on.)

The Law of DEMAND

There is an inverse relationship between price and quantity demanded. That means when the price goes down or
decreases, the quantity demanded will increase.
DEMAND SCHEDULE FOR EGG

PRICE QUANTITY
DEMANDED

P5 10

P4 20

P3 30

P2 50

P1 80

▪If you put this values in a graph, you will get a demand curve.

DEMAND CURVE (downward sloping) expresses the realation between the price changed for a product and the
quantity demanded, holding constants the effect of all other variables. Frequently, a demand curve is shown in the
form of a graph.

▪This is a downward sloping curve showing the law of demand.

Change in quantity demanded movement along a single demand curve.

3 reasons why the demand curve is downward sloping:

1. Substitution Effect changes in price whereas motivate consumers to buy relatively cheaper substitute.

2. Income Effect changes in price affect the purchasing power of consumer's income.

3. Law of Diminishing Marginal Utility (Law of Decreasing Additional Satisfaction) As you continue to consume a
given product, you will eventually get less additional utility (satisfaction from each unit you consume. As you
consume anything, your additional satisfaction decrease.

Utility - satisfaction

Marginal - addition

This explains the Law of Demand and The Shift in Demand.

Shift in demand (shift from one demand curve to another) reflects a change in one or more of the non-price
variables in the product demand function.

▪Increase in demand, shift to the right.

▪Decrease in demand, shift to the left.

5 Shifters of Demand

1. Tastes/Preferences

2. Number of Consumers

3. Price of Related Goods

4. Income it depends on type of product.

Normal goods income and the demand for the product are directly related. (Increase in income, the demand
also increase. Decrease in income, the demand decrease).

Inferior goods income and the demand for the product are inversely related. (Increase in income, decrease in
demand. Decrease in income, increases the demand).

5. Expectations (Future Expectations)

IMPORTANT DETAIL:

The Change in Quantity Demanded Vs Change in Demand

▪The movement from A to B is the change in quantity demanded. When the price goes down from P30 to P20, the
quantity demanded increase from 10 to 20 eggs.

▪The movement from A to C is called a change in demand, price doesn't change but people decided to buy more.
Why? Because of the one shifter called Expectations.

What happens to the demand for a product when the price decreases?

- NOTHING. Demand stays the same, but the quantity demand increases.

▪Price changes the quantity demanded (moves along the curve)

▪The 5 shifters change the demand (moves the entire curve)

SUPPLY refers to the quantity of a good or service that producers are willing and able to sell under a given set of
economic conditions.

Economic conditions to be considered include:

a. The pirice of the good in question

b. Prices of related goods

c. The current state of technology

d. Level of input prices

e. Weather and so on.

Market Supply Function for a product is a statement at the relation between the quantity supplied and all
factors affecting that quantity.

Quantity of Product X supplied = Q = f(Price of X, Price of Related goods, Current state of technology, Input Prices,
Weather, and so on.)

The Law of SUPPLY There is a direct relationship between price and quantity supplied. (When the price goes
up, the quantity producers will make or supply will increase. Because the increase in price, will increase the profit
for suppliers.)

SUPPLY SCHEDULE FOR EGG

Price Quantity
Demanded

P5 50

P4 40

P3 30

P2 20

P1 10

▪If you put this values in a graph, you will get a demand curve.

Supply Curve expresses the relation between the price changed and the quantity supplied, holding constant the
effects of all other variables.
▪Supply curve is upward sloping, when the price increases because the quantity supplies increases.

Change in the quantity supplied is the movements along the supply curve.

Shift in demand (or a switch from one supply curve to another) indicates a change in one or more of the non-price
variables in the product supply function.

5 Shifters of Supply

1. Price Resources changes of price of input or resources.

2. Number of Producers huge suppliers or vendors of a certain product.

3. Technology (new advanced technology)

4. Taxes and Subsidies - government involvement.

Subsidies - government give suppliers money to produce more output. Results the supply to shift to the right
(increases)

Taxes - take away producers money. Since they don't have money to produce staff, the supply will shift to the left
(decreases)

5. Expectations - future expectation to the price.

What happens to the supply for a product when the price increases?

- NOTHING. Supply stays the same but the quantity supplies increases.

Remember:

▪Price changes the quantity supplied (moves along the curve)

•The 5 shifters changes the supply (moves along the entire curve)

SUPPLY AND DEMAND TOGETHER

DEMAND AND SUPPLY

PRICE QUANTITY QUANTITY
SCHEDULE FOR EGG
DEMANDED SUPPLIED

P5 10 50

P4 20 40

P3 30 30

P2 50 20

P1 80 10
MARKET EQUILIBRIUM (Market Clearing of Price and Quantity) - only place where the quantity
demanded exactly equals to quantity supplies.

- when the quantity demanded and the quantity supplied are in perfect balance of a given price.

The quantity demanded = The quantity supplied

MARKET EQUILIBRIUM PRICE - just clears the market of all supplied products.

▪SURPLUS - A condition of excess supply. The quantity supplied increases to produce more profit but the quantity
demanded decreases because of a high price. To know the surplus, you difference the quantity supplied minus the
quantity demanded (QS-QD).

The quantity supplied > The quantity demanded

SHORTAGE - is created when buyers demand mpre of a product at a given price than producers are willing to
supply. The quantity demanded increases and the quantity supplies decreases because of a low price. To know the
shortage of the product, you simply subtract the quantity supplied from the quantity demanded (QD-QS).

The quantity supplied < The quantity demanded

Comparative Static Analysis - the role of factors influencing demand or supply is analyzed while holding all else
equal.