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    E.C.a - The Law of Supply and Demand - MICROECO

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    E.C.a - The Law of Supply and Demand - MICROECO

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    E.C.a - The Law of Supply and Demand _ MICROECO

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    20 views5 pages

    E.C.a - The Law of Supply and Demand - MICROECO

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    of 5

    MICROECO - Basic Microeconomics

    1st Semester - Midterm

    The Law of
    SUPPLY AND DEMAND
    ___
    By Erielle C. Avillanosa
    BSBA - HRDM III (St. John Paul II)

    - (https://www.vectorstock.com/royalty-free-vector/demand-and-supply-balance-on-the-scale-vector-21033236

    INTRODUCTION
    Microeconomics is the social science that studies individuals and corporate
    decision-making behavior and how it involves the utilization and distribution of
    resources that might benefit the firm.

    Economics is the study of proper allocation and utilization of scarce resources to


    satisfy unlimited human wants (and needs)

    ● Needs - food, clothing, shelter


    ● Wants - you can live without
    2

    Questions:

    1. How do we define market demand? market supply?


    2. What are the factors affecting our demand and supply?
    3. What are inferior and normal goods? How do they affect our demand?
    4. What is the difference between a change in supply and shift in supply curve?

    How do we define market demand? market supply?

    Supply and Demand is one of the important factors in our Economics, these determine what
    suppliers are willing to create and what customers are willing and able to purchase in a free
    market.

    Demand: It is the quantity of products and services that buyers are willing and able to
    purchase at various prices within a certain time period.

    The Law of Demand is a negative or inverse relation between price and quantity demanded,
    specifying when the price increases, the quantity demanded decreases, and when the market
    decreases, the quantity demanded increases.

    People frequently purchase cheaper items and services in order to save money. This causes a
    shift in market demand, with consumers purchasing lesser quantities of an item at a greater
    price because as the price of a product rises, it also increases the opportunity cost of purchasing
    that good.

    Supply: It is the quantity of a certain goods and services that a seller is willing and able to sell
    at a particular price during a specific period.

    Supply may also be described as how much a product or service's suppliers are willing to
    produce and provide to the market given the limited resources available.
    3

    When the price rises, the quantity supplied increases; when the price lowers, the quantity
    supplied decreases. Businesses strive to raise income, so if they anticipate receiving a higher
    price for something, they will manufacture more of it.

    What are the factors affecting our demand and supply?

    There numerous of factors that can affect the demand and supply of our economy, here are
    some of the possible factors:

    1. Price Changes
    Price changes have a significant impact on supply and demand. When a product becomes
    so expensive that the average customer no longer thinks it is worth to purchase it,
    demand falls. This results in production decreases, which should maintain the product's
    value. Lowering a product's price may enhance demand, indicating that the public
    believes the product is now a great purchase. This may cause changes in production to
    increase in order to stay up with demand.

    2. Rivalry of Alternatives Products


    When a new product enters the market, the rivalry between it and the old product might
    cause demand for the existing product to decrease. While many consumers may
    purchase the goods, a significant number of them may choose to purchase the
    alternative one. This results in price wars, which ultimately lower the price of the
    product and may need a drop in supply to keep up with the decrease in demand.

    3. The Product’s Cost


    The price of a product has an inverse (negative) relationship with the quantity of that
    product that consumers are willing and able to buy. Consumers prefer to buy more
    low-cost goods and less high-cost products. The Law of Demand refers to the inverse
    connection between price and the quantity buyers are willing and able to buy.

    4. Consumers Preferences: Needs and Wants


    This is a less physical object that could still have a major influence on demand. There
    are several factors that can change one's likes or preferences, causing consumers to
    purchase more or less of a product. For example, if a celebrity endorses a new product,
    4

    the demand for that product may grow. On the other hand, if a health researcher finds
    that something is harmful to your health, the demand for the product may fall.

    5. Commercial Advertisement

    Commercials on television, the internet, and radio have an impact on supply and
    demand because they make people aware of a product's availability. People do not
    purchase something they are unaware is for sale. If the advertisement is engaging, there
    is a significant possibility that demand will rise and supply will have to follow up.

    As I have mentioned, there are numerous factors that can affect our demand and supply. It
    is important to know and understand these factors so that producers may have time to
    change and plan it accordingly.

    What are inferior and normal goods? How do they affect our demand?
    Inferior Goods: It is when a person's income is poor, he or she will often buy inferior goods.
    They are often the least expensive options for fulfilling a consumer's demands, making them
    suitable for customers with a limited budget. These are often the lowest quality items available,
    purchased only for economic reasons.

    Normal Goods: When a person's income increases, he or she often quits purchasing inferior
    goods and instead purchases normal goods. These things are more expensive than inferior
    goods, but they are often of higher quality. When customers have enough money to purchase
    ordinary goods, they will choose them over inferior goods.

    How do they affect our demand?


    Similarly, demand for inferior goods has an inverse connection with income. As income drops,
    so does demand for lower-quality items. Consider this situation, when a person’s money is
    tight, people go for the lowest things they can find. The opposite is also true. As income
    increases, so does demand for lower-quality items decreases. As a consumer's access to money
    grows, they seek alternatives to poorer quality products.

    Normal goods demand has a direct connection with income. As income increases, so does
    demand for normal goods increases. However, if a consumer's income falls (due to a job loss or
    incapacity to work due to illness or accident), the person's demand for ordinary goods decreases
    as well. Instead, they will seek out inferior goods.
    5

    What is the difference between a change in supply and shift in supply


    curve?
    Change in Supply: A change in supply is an economic term that refers to when the suppliers
    of a certain product or service change their production or output. A change in supply might
    occur from new technology, such as a more efficient or less expensive production process, or
    from a change in the number of market competitors.

    On the other hand, , ,

    Supply Curve Shift: It is the changes in production costs and other factors that can cause a
    whole supply curve to shift right or left. This results in a greater or lesser quantity being
    produced at a given price. A shift in supply indicates a change in the quantity supplied at every
    price.

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