BASIC PRINCIPLES OF DEMAND

AND SUPPLY
MARKET
- An interaction between buyers and sellers of trading or
exchange.

 Goods Market - where we buy consumers goods

 Labor Market - where workers offer services and look for
jobs, and where employers look for workers to hire.
 Financial Market - which 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 Function - shows how the quantity demanded of a
good depends on its determinants.
The equation:
Qd = f(P)

The quantity demanded for a good is dependent on

the price.
The quantity demanded is determined at each price
with the following demand function:

Qd = 6 - P/2
Table 2.1. Hypothetical Demand Schedule for vinegar (in bottles)
Price per bottle Number of bottles
₱0 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
vertical axis (Y) and the quantity demanded measured on the horizontal axis (X).

• The demand curve slopes downward indicating the negative relationship

between the two variables which are price and quantity demanded.
 10

6
Price

1 2 3 4 5

Quantity Demanded ( In Bottles)

Figure 2.1.Hypothetical Demand Curve of Martha for Vinegar (in bottles) for One Month
• Income effect - is felt when a change in the price of a good
changes consumer's real income or purchasing power, which is
the capacity to buy with a given income.

• Substitution effect - is felt when a change in the price of a good

changes demand due ti alternative consumption of substitute
goods.
 The Law of Demand

• As price increases, the quantity demanded for that

product decreases. When price increases, the quantity
demanded for the good decreases.
Non- Price Determinants of Demand
Price (P)
Taste (T)
 Income (Y)
Expectations (E)
Price of Related Goods (PR)
Number of Consumers (NC)

The demand function will now read: D = f(P, T, Y, E, PR, NC)

Factors other than the price of the product are the non-price factors of demand
Prices of related goods as substitutes or complements also
determine demand.

• Substitute goods - those that are used in place of each other. ( butter and
margarine)
- An increase in the demand for one good leads to a decrease in the
demand for the other good.

• Complementary goods - goods that are used together, such as cellphone and
a simcard.
- an increase in the demand for a good will lead to an increase in the
demand for the complement.