APPLIED ECONOMICS

SHS
JHS
Department

Laguna College of Business and Arts

 APPLIED ECONOMICS

SHS
JHS
Department

DEFINITION OF TERMS:
MARKET- place where buyers and sellers meet
and trade
DEMAND- the willingness of the buyer or
consumer to pay for a certain good
SUPPLY- willingness to produce

Laguna College of Business and Arts

 APPLIED ECONOMICS

SHS
JHS
Department

The Demand Curve and the

Demand Schedule

Laguna College of Business and Arts

 APPLIED ECONOMICS

SHS
JHS
Department
Quantity demanded the amount of goods and
services consumers are willing to purchase
given a certain price.

If the price of the good is low, the quantity

high
demanded for the good is _________ …

INVERSE RELATIONSHIP

Laguna College of Business and Arts

 APPLIED ECONOMICS

SHS
JHS
Department

Demand is the schedule of various

quantities of goods and services which buyers
are willing and able to purchase at a given price,
time and place, all other factors are held
constant (ceteris paribus)

Laguna College of Business and Arts

 APPLIED ECONOMICS

Table 2.1 The DEMAND SCHEDULE

SHS
JHS
Department
for BREAD
LAW
POIN OF DEMAND
PRICE in Quantity
T
It PHP
states that… holding all other things
A 4 0
constant,
B 3
the quantity
10
demanded for a
4 A
commodity
C 2 or service
20 is negatively Figure
or inversely
2.1 Demand Curve

B
related to its own price.
D 1 30 3
E 0 40
2 C

Thus, when the price of good rises,

D
the
1
falls and when the
quantity demanded _______, E
price
rises
falls, the quantity demanded10 ________.
20 30 40
QUANTITY

Laguna College of Business and Arts

 APPLIED ECONOMICS

SHS
JHS
Department

Getting the Slope of the

Demand Curve

Laguna College of Business and Arts

 APPLIED ECONOMICS

SHS
JHS
Department

In order to compute for the slope of the demand curve,

economist use the formula below

rise y P P2 - P1
slope= run = = =
x Q Q 2 - Q1

Laguna College of Business and Arts

 APPLIED ECONOMICS

SHS
JHS
Department

where:
P1 and Q1 stand for initial price and
quantity of the product, respectively; and

P2 and Q2 are the final price and quantity of

the product , respectively.

is a symbol for change.

Laguna College of Business and Arts

 APPLIED ECONOMICS

SHS
JHS
Department
Demand Function

QdX = f (PX )
Where:

Qd X = quantity demanded for commodity X

P X = price of commodity X

Laguna College of Business and Arts

 APPLIED ECONOMICS

SHS
JHS
Department
Demand Equation

QdX = a- bPX
Where:

a = intercept

P X = slope

Laguna College of Business and Arts

 APPLIED ECONOMICS

SHS
JHS
Department
Example
QdX = 20- 0.4PX
Interpretation of the intercept and the slope
a = 20 The intercept means that if the price commodity
X is zero, the buyer will purchase 20 units of the
commodity.
b = -0.4 The slope means that for every one unit change
(either an increase or decrease) in the price of X,
the quantity demanded will change by 0.4 unit.
The negative sign indicates a negative (inverse)
relationship between the price of X and the
quantity demanded.

Laguna College of Business and Arts

 APPLIED ECONOMICS

SHS
JHS
Department

Shifts in Demand and their

Determinants

Laguna College of Business and Arts

 APPLIED ECONOMICS

SHS
JHS
Department

Quantity demanded is normally dictated by

the changes in PRICE. However, there are also
factors that influence demand.
There are cases where the demand curve
shifts either to the right of to the left even if the
price does not change.

Laguna College of Business and Arts

 APPLIED ECONOMICS

SHS
JHS
Determinants Department

1. Changes in the average income

2. Changes in the size of population
3. Changes in tastes and preferences
4. Changes in the consumer’s speculations

Laguna College of Business and Arts

 APPLIED ECONOMICS

Why is the DEMAND CURVE SHS

JHS
Department
DOWNWARD SLOPING?

The demand curve shows a negative

relationship between the price of the goods
and the quantity demand.
Specifically, as the price of a commodity
declines, the quantity demand increases and
when the price increases, the quantity
demand declines.

Laguna College of Business and Arts

 APPLIED ECONOMICS

SUBSTITUTION and INCOME EFFECTS SHS

JHS
Department

Substitution Effect- describe the decision of a

consumer to substitute an expensive good with
cheaper goods when there is a price change.

Income Effects- refers to the modification of the

consumption of a commodity due to change in the
purchasing power of the consumer resulting from a
price change.

Laguna College of Business and Arts

 APPLIED ECONOMICS

SHS
JHS
Department
PRINCIPLES OF DIMINISHING MARGINAL
UTILITY

According this major economic principle as a

buyer continuous to consume a good his
total satisfaction or utility increases;
however, the additional or marginal
satisfaction decreases as a buyer consumes
an additional unit of good.

Laguna College of Business and Arts

 APPLIED ECONOMICS

SHS
JHS
Department
PRINCIPLES OF DIMINISHING MARGINAL
UTILITY

This reduction in marginal satisfaction is

attributed to the fact that consumers can
have a feeling of SATIATION when they
continuously increase the consumption of a
particular commodity.

Laguna College of Business and Arts

 APPLIED ECONOMICS

SHS
JHS
Department
PRINCIPLES OF DIMINISHING MARGINAL
UTILITY

DIMINISHING MARGINAL UTILITY implies

that the additional satisfaction provided by
an additional commodity consumed is lower
than the additional satisfaction given by the
previous level of consumption of the
commodity.

Laguna College of Business and Arts

 APPLIED ECONOMICS

TWO MAJOR CATEGORIES OF CHANGES IN SHS

JHS
Department

DEMAND CURVE

1. MOVEMENT along the demand curve-

refers to the change in quantity demand
resulting from the change in the price of the
commodity.

Laguna College of Business and Arts

 APPLIED ECONOMICS

SHS
JHS
MOVEMENT along the DEMAND CURVE Department

Price
P1 a

P2 b

D
0 Q1 Q2 Quantity
Laguna College of Business and Arts
 APPLIED ECONOMICS

TWO MAJOR CATEGORIES OF CHANGES IN SHS

JHS
Department

DEMAND CURVE

2. SHIFT in the demand curve- changes in

demand curve caused by any other factors
beside the price of the commodity.

Laguna College of Business and Arts

 APPLIED ECONOMICS

SHIFTS in the DEMAND CURVE due to an INCREASE SHS

JHS
Department
in the PRICE of a SUSTITUTE PRODUCT

Price
P1 a m

P2 b n

D1 D 2

0 Q1 Q11 Q2 Q12 Quantity

Laguna College of Business and Arts
 APPLIED ECONOMICS

SHS
JHS
Department

The Supply Curve and the

Supply Schedule

Laguna College of Business and Arts

 APPLIED ECONOMICS

SHS
JHS
Department

Supply is the schedule of various

quantities of goods and services which sellers
are willing and able to sell at a given price, time
and place, all other factors are held constant
(ceteris paribus)

Laguna College of Business and Arts

 APPLIED ECONOMICS

Table 2.2 The SUPPLY SCHEDULE for

SHS
JHS
Department
BREAD
POINT PRICE in Quantity
PHP Figure 2.2 Supply Curve

LAWA OF SUPPLY
0 0
B It states that as the
4 price increases, the
1 10 E
C 2 20
quantity3supplied
30
also increases,
3
and D as the price
D
decreases,
E 4 the quantity
40 suppliedCalso decreases
2
(Ceteris Paribus)
B
1
A

10 20 30 40
QUANTITY

Laguna College of Business and Arts

 APPLIED ECONOMICS

SHS
JHS
Department

Getting the Slope of the

Supply Curve

Laguna College of Business and Arts

 APPLIED ECONOMICS

SHS
JHS
Department

In order to compute for the slope of the demand curve,

economist use the formula below

rise y P P2 - P1
slope= run = = =
x Q Q 2 - Q1

Laguna College of Business and Arts

 APPLIED ECONOMICS

SHS
JHS
Department

where:
P1 and Q1 stand for initial price and
quantity of the product, respectively; and

P2 and Q2 are the final price and quantity of

the product , respectively.

is a symbol for change.

Laguna College of Business and Arts

 APPLIED ECONOMICS

SHS
JHS
Department
Supply Function

Qs X = f (PX)
Where:

Qs X = quantity supplied for commodity X

P X = price of commodity X

Laguna College of Business and Arts

 APPLIED ECONOMICS

SHS
JHS
Department
Demand Equation

Qs X = a- bPX
Where:

a = intercept

P X = slope

Laguna College of Business and Arts

 APPLIED ECONOMICS

SHS
JHS
Department
Example
QsX = -10+ 0.6PX
Interpretation of the intercept and the slope
a = -10 The intercept means that if the price commodity
X is zero, the seller will sell -10 units of the
commodity. A negative quantity is nothing. This
only emphasizes that if there is no price, the
seller will sell nothing.
b = 0.6 The slope means that for every one unit change
in the price of X, the quantity supplied will
change by 0.6 unit.
The positive sign signifies a positive relationship
between the price and the quantity supplied.

Laguna College of Business and Arts

 APPLIED ECONOMICS

SHS
JHS
Determinants Department

1. Price of Production Inputs

2. Taxes
3. Technology
4. Expectation

Laguna College of Business and Arts

 APPLIED ECONOMICS

Why is the SUPPLY CURVE UPWARD SHS

JHS
Department
SLOPING?

The supply curve shows a positive or direct

relationship between the price of the
commodity and the quantity supplied in the
market.

Laguna College of Business and Arts

 APPLIED ECONOMICS

Why is the SUPPLY CURVE UPWARD SHS

JHS
Department
SLOPING?

The main motivation to supply goods is to

gain profit which is based on the costs of
production od a firm and the price of the
commodity. There are several
interpretations on the reasons why suppliers
respond positively with price changes.
VARIATION in the UNIT COST of Production

Laguna College of Business and Arts

 APPLIED ECONOMICS

PRINCIPLE OF DIMINISHING MARGINAL SHS

JHS
Department

PRODUCTIVITY and INCREASING MARGINAL

COST

According to this perspective, as the

production of good increase not only does its
total cost increases but the additional or
marginal cost increase as well.

Laguna College of Business and Arts

 APPLIED ECONOMICS

PRINCIPLE OF DIMINISHING MARGINAL SHS

JHS
Department

PRODUCTIVITY and INCREASING MARGINAL

COST

This means that the additional cost of an

additional unit of production is higher than
the previous unit of production.

Laguna College of Business and Arts

 APPLIED ECONOMICS

PRINCIPLE OF DIMINISHING MARGINAL SHS

JHS
Department

PRODUCTIVITY and INCREASING MARGINAL

COST
This increase in marginal cost is due to the
principle of diminishing marginal
productivity of resources. According to this
principle, as a fixed factor input, capital or
land, is mixed with a variable factor input,
labor, the employment of additional laborers
will increase total production but will
increase it at a decreasing rate.

Laguna College of Business and Arts

 APPLIED ECONOMICS

PRINCIPLE OF DIMINISHING MARGINAL SHS

JHS
Department

PRODUCTIVITY and INCREASING MARGINAL

COST
This means that although total production is
increasing, the additional or marginal
contribution of the additional labor to total
production is declining. This is because the
productivity of the variable input is
constrained by a fixed input, capital or land.

Laguna College of Business and Arts

 APPLIED ECONOMICS

TWO MAJOR CATEGORIES in the CHANGES in SHS

JHS
Department

the SUPPLY CURVE

1. MOVEMENT along the supply curve- is

brought about changes in the price of the
commodity. An increase in price will increase
the quantity supplied as shown by
movement towards northeast along the
supply curve. (Vise Versa)

Laguna College of Business and Arts

 APPLIED ECONOMICS

SHS
JHS
MOVEMENT along the SUPPLY CURVE Department

S
Price h
P2

g
P1

0 Q1 Q2 Quantity
Laguna College of Business and Arts
 APPLIED ECONOMICS

TWO MAJOR CATEGORIES OF CHANGES IN SHS

JHS
Department

DEMAND CURVE

2. SHIFT in the supply curve- is caused by

changes in the other factors affecting supply
except the price of the commodity.

Laguna College of Business and Arts

 APPLIED ECONOMICS

SHIFTS in the SUPPLY CURVE due to an SHS

JHS
Department
IMPOSITION of ADDITIONAL SALES TAX S2
S1
Price f
P1 c

g
P2
b

0 Q22 Q2 Q11 Q1 Quantity

Laguna College of Business and Arts
 APPLIED ECONOMICS

SHS
Department

Reference

Applied Economics for a Progressive Philippines

by Tereso S. Tullao Jr., Ph.D

Laguna College of Business and Arts

 APPLIED ECONOMICS

Seat work! SHS

JHS
Department

Calculate the quantity demanded assuming the following

prices:
1.P= 20
2.P= 30
3.P=40
4.P=50
5.P=60
Plot the demand curve

Laguna College of Business and Arts

 APPLIED ECONOMICS

Seat work! SHS

JHS
Department

Calculate the quantity supplied assuming the following

prices:
1.P= 20
2.P= 30
3.P=40
4.P=50
5.P=60
Plot the supply curve

Laguna College of Business and Arts