CHAPTER 2

APPLIED ECONOMICS

APPLICATION OF SUPPLY AND

DEMAND
PRICES OF BASIC COMMODITIES
What is Demand?
 Defined as want or willingness of consumers to buy
goods and services.
 In economics willingness to buy goods and services
should be accompanied by the ability to buy and is
referred to as effective demand.
 Demand Extension - increase in demand due to the
fall in price, all other factors remaining constant.
 Demand Contraction – the fall in demand due to the
rise in price, all other factors remaining constant.
Factor affecting demand
 People’s income
 Population
 Fashion and taste
 Income Tax
 Advertising
 Climate – changes in climate affects the
demand for certain goods
 Interest rates- a fall in interest rate will see a rise
in demand for goods and services.
What is Supply?
 The amount of goods and services firms or producers are
willing and able to sell in the market at a possible price, at a
particular point time.
 The higher the price for the good or service the more it will be
supplied in the market. The reason behind it is that more and
more suppliers will be interested in supplying those goods and
services whose prices are rising.
 Supply Extension – the increase in supply of a commodity with
the rise in price, other factors remaining unchanged.
 Supply Contraction – the fall in supply of a commodity when
its prices fall, other factors remaining unchanged.
Factor affecting Supply
 Commodity price
A rise in price will result in more of the commodity being supplied to the
market and vice versa.

 Product cost
Increase in the cost of any factor of production may result in the decrease
supply as reduced profits might see producers less willing to produce that commodity.

 Technological advancement
Improvement in technology results in lowering of cost of production and
more profits for the producer and thus more supply of that commodity.

 Climate
Climate and weather conditions affect the supply of commodities.
 Market Equilibrium / Price Determination

 Equilibrium is a point of balance or a point of rest.

 A state in market where economic forces are balanced and in the
absence of external influences the values of economic variables
will not change.
 Quantity demanded and quantity supplied is equal
 Theamount of goods or services sought by buyers is equal to the
amount of goods services produced by sellers.
What Is Elasticity?
Elasticity is a measure of a variable's sensitivity to a change in another
variable. In business and economics, elasticity refers the degree to which
individuals, consumers or producers change their demand or the amount
supplied in response to price or income changes. It is predominantly used to
assess the change in consumer demand as a result of a change in a good or
service's price.
Example
when gas prices increase by 50%, gas purchases fall by
25%.
Given:
50% prices increase
25% purchases fall

Formula: ( % change in quantity )

( % change of prices )

Prices Elasticity: - 25% / 50% = -0.50

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 LABOR, SUPPLY,
POPULATION GROWTH &WAGES
What is Labor?
 Labor is the amount of physical, mental and social
effort used to produce goods and services in an
economy.
 It is one of the four factors of production that drive
supply.
 Labor supplies the expertise, manpower and
service needed to turn raw materials into finished
products and services.
What is Supply?
 Is a fundamental economic concept that describe the total
amount of a specific good or service that is available to consumers.
 Supply can relate to the amount available at a specific price or the
amount available across a range of prices if displayed on a graph.
Population Growth

An increase in the number of people

that reside in a country, state,
country, or city. To determine
whether there has been population
growth.
How Supply and Demand affects the
population?
 Salary structure affects prices and prices
affect supply and demand, which affect
consumption . In a market-oriented economic
system , the impact population size on market
demand affects supply and demand and
prices. Population changes are slow and
consumption changes are slow.
Wages

 Money that is paid or received for work or

services, as by the hour, day, or week.
Labor Migration & the Overseas
Filipino Worker (OFW)
What is migration?
Refers to the movement of people from one place to
another.

2 types of Migration:
a) Internal Migration – refers to the movement of people within one
country that is rural to urban.
b) International Migration – refers to the movement of people from
one country to another.
 Causes of Migration

 Poverty
 Unemployment
 Victims of natural calamities
 Improve standard of living
 Better education
 Better environment
 Economics Security
 Effect of Migration
Positive Effects
 Increase labor supply
 Cheap labor

Negative Effects
 Overcrowding
 Lack of housing facilities
 Traffic congestion
 Heavy pollution in air, water, noise
 Unemployment
 Occurrence of squatter areas
What is labor migration?

 Is the process of shifting a labor force from

one physical location to another.
 Takes place with the support of labor force.
Causes of Labor Migration

1. The desire of job seekers to increase income and

to improve the standard of living.
2. The emergence of new industries.
3. The relocation of production facilities of a given
business to a new area.
What are OFWs?
Overseas Filipino Workers (OFWs)-
are Filipinos who are presently and
temporarily working outside the
country. They may be land based of
sea based workers.
Example:
Domestic Helpers,
Teachers, Seaman, and Nurses
Reason Behind The OFW phenomenon
1. High unemployment rate
Newly
The Philippine Housing Shortage &
The Real Estate Boom
The Philippine Housing Shortage
 Housing shortage is present when there is insufficient
housing to accommodate the population in an area, when
the supply of houses cannot meet the demand.
 Is unaffordable for those who need it.

Indication of housing shortage:

1. Presence of homeless people
2. Slum and squatter settlements
What does homelessness means?
 Lack of regular shelter
 People seeking temporary housing.

Where does homelessness happen?

 People sleep in public areas