Application of

Demand and
Supply
PRICES OF BASIC COMMODITIES

What is a Commodity?
Pertains to homogenous
good that commands price.
 COMMODITY
• It is characterized by its uniformity across
the market.
• This is often used as raw materials or
inputs to produce another good
(secondary product)
 DEMAND
• Is the willingness of a consumer to buy a
commodity at a given price. A demand
schedule shows the various quantities the
consumer is willing to buy at various
prices.
 Consumer Utility
• Refers to a person’s willingness and ability
to consume a good in reaction to price
changes.
• Forms the basis of the law of demand.
 The Law of Demand
• The law of demand states that as the
price of good goes up, the quantity
demanded of that good goes down.
 Ceteris Paribus

• All other things remaining constant.

 Demand Schedule

• A table of price and quantity

values.
Demand schedule of Martha for
vinegar (in bottles)
Price per bottle Number of bottles
10 6
12 5
14 4
16 3
18 2
20 1
 Demand Curve
• The demand curve is a 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).
Demand schedule of Martha for
vinegar (in bottles)
Price per bottle Number of bottles
10 6
12 5
14 4
16 3
18 2
20 1
 SUPPLY
• Refers to the quantity of goods that a seller is
willing to offer for sale. The supply schedule
shows the different quantities the seller is
willing to sell at various prices. The supply
function shows the dependence of supply on
the various determinants that affect it.
 The Law of Supply
• The law of supply states that as
the price increases, the quantity
supplied of that product also
increases.
Supply Schedule of Pedro for Fish in One
Week
PRICE OF FISH (per kilo) Supply (in kilos)
Php 20 200
Php 40 300
Php 60 400
Php 80 500
Php 100 600
Demand and Supply
in Relation to the
Prices of Basic
Commodities
 Market Equilibrium
• Equilibrium is a state of balance when
demand is equal to supply. The equality
means that the quantity that sellers are
willing to sell is also the quantity that
buyers are willing to buy for a price.
Determination of Market Equilibrium

• Assuming that the demand

function for Good X is: Qd = 60-
P/2 and the supply function for
Good X is: Qs = 5+ 5P.