[not an example…] Because Maine is now being paid a
higher wage, she can afford to buy a new car even
though she is moving into a bigger apartment.
Market system (Market Economy)
 depends on the market to find the most
efficient way of using resources
 ______________________ - assures that firms
produce outputs that consumers actually desire
ceteris paribus – allows economists to focus on the
effects of only one change at a time
“The law of demand concludes that a RISE IN THE PRICE
OF A GADGET decreases the quantity demanded and
creates a movement upward ALONG THE DEMAND
CURVE”
The accuracy of the economist’s prediction
depends on whether the chairs X Corporation produce
are NORMAL GOODS… when an economist working for
the firm predicts that “if people’s income rise next year,
then the demand for our chairs will increase (ceteris
paribus).
The price of Pepsi decreased… then its quantity
demanded has increased
Movement Along The Demand Curve
 Sales managers decided to cut their prices, and
the increase in their sales has been remarkable
Example of Complements
 Both of Z and Y goods are complements…
Suppose that when the price of good Y goes
down, the demand for good Z goes up.
Shift in the Demand Curve for Digital Cloud Services
 A change in the price of a related service
 A change in wealth
 A change in income
[will NOT cause…] A change in price of digital cloud
services
The price of computer chips used in the manufacture of
personal computers has fallen.
 Increase in the supply of personal
computers
If Qd (quantity demanded) = 20 – 2P and Qs (quantity
supplied) = 5 + 3P, then the equilibrium price is 3 and
equilibrium quantity is 14.
20 – 2P = 5 + 3P
20 – 5 = 3P + 2P
15 = 5P
3=P
Problem. The price of a good rises and the quantity
decreases, the demand curve shifting ____________.
Problem. Suppose economics departments in the
Philippine universities are unable to fill many available
faculty positions then the salaries offered by these
departments are BELOW THE MARKET PRICE FOR
QUALIFIED ECONOMISTS.
Problem. The government of Economica announces
that it will purchase its farmers’ surplus of milk, we can
infer that Economica has a price floor ABOVE the
equilibrium price for milk.
[Remember] The price will adjust to bring the market to
equilibrium if it is NOT in equilibrium.
Problem. SPRING WATER
 Supply – decreases
 At the same time, DEMAND – increases
 Equilibrium price – rises
 Equilibrium quantity – increase/decrease/stay
the same
Along a straight-line demand curve…
 Price falls the ___________________________
Problem. Long-run supply of rice – perfectly elastic
 In the long run, a large rise in the price of rice
causes no change in the quantity of rice
supplied
[Remember] The good is necessity if it would cause the
demand for a good to be relatively inelastic.
Price – INCREASE
Demand – ELASTIC
Total Revenue – DECREASE