Basic Concept of Demand and Supply

BASIC CONCEPT OF DEMAND AND SUPPLY

 

DEMAND- quantities of a particular goods and services consumers are willing and able to buy from the market at different possible  prices

                                                                           

TYPES OF DEMAND

1. CONSUMER GOODS AND PRODUCER GOODS

Consumption goods- directly satisfy our needs

 Capital Goods- goods used for production for other goods        

2.  PERISHABLE AND DURABLE GOODS

Durable goods- products that last for a long time, usually three years and more

Perishable goods-  goods that decay/spoil quickly            

3. AUTONOMOUS AND DERIVED GOODS

Autonomous goods - the amount of consumption that would take place in an economy if     consumers had no income. These goods are often dubbed as “NEEDS”  food, water,      electricity, etc.

Derived goods- raw materials or other inputs to a process of production

 

4. INDIVIDUAL’S DEMAND AND MARKET DEMAND

Individual demand- represents the quantity of a good that a single consumer would buy at a specific price point at a specific point in time

Market demand- summation of the demand for a goods/services by all individual

5. FIRM AND INDUSTRY DEMAND

INDUSTRY DEMAND – the total demand for the products of a particular industry

FIRM/ COMPANY DEMAND – Refers to the demand for the products of a particular c                            company in an industry, an industry consist of different brand names and                                     trademarks.

LAW OF DEMAND-  As the price of good increases, quantity demand decreases and as the price decreases, quantity demand increases.

            -This describes how price affects CONSUMERS

SUPPLY -  goods and services, producers or sellers are willing and able to sell

LAW OF SUPPLY- As the price increases, the supply increases and as the price decreases, the supply decreases

This describes how price affects PRODUCERS

NON-PRICE DETERMINANTS OF SUPPLY

1) NUMBER OF SELLERS – The more sellers, the more quantity supplied for a particular good or service.

2) TECHNOLOGY -  a modern and advance technology will result to mass production, while a traditional method will brings about inadequate output.

3) COST OF PRODUCTION – the higher the  cost of producing a particular goods, the lesser        is the amount of good available for sale

4) TAXES AND SUBSIDIES – the higher the tax, the lesser will be the amount available for re-      investment by the firm that creates less outputs.  

            SUBSIDIES are grants or aids extended by the government to help ease the production         activities of producers. Therefore, the more subsidies provided by the government, the    more outputs will be produced.

EXEPTIONS TO THE LAW OF SUPPLY

1) EXEPTIONS REGARDING FUTURE  PRICE – When the sellers expect the prices to rise                    in the future then they may adopt, wait and watch policy and withhold their supply of        goods. 

2) FARM PRODUCE – such product may not obey the law of supply as they may not react to        changes in prices due to heavy dependency to weather conditions

3) PERISHABLE COMMODITIES – Certain commodities have very short shelf life and they       need to be made available in the market before they perish..

4). OUT OF FASHION GOODS – there are certain goods that are out of fashion and no longer      in vogue, sellers lower it’s price to clear these goods

5)  ECONOMIC SLOWDOWN – During the low economic phases, the sellers may not have          advantage of high prices and hence during such tough times goods are sold even when      they do not witness price rise in order to recover their costs. Law of supply is not        applicable in this case.

6) CHANGE IN BUSINESS – changing business will cause the seller to sell his current goods         to lower price to clear them off.

7) IMMEDIATE REQUIREMENT OF FUNDS – there are times that the seller is in           immediate need of funds , so he will supply the goods in the market even at lower          prices.

8) SUPPLY OF LABOUR – The workers are interested in high wages till a certain point, once         that point is achieved they may like to devote their time to leisure activities. So after a      particular point, the workers may no longer interested in higher wages.

            -workers may put in less hours of work even if more wages are offered to them        (supply of  labor is inversely related to wages)

CHANGE IN QUANTITY SUPPY VS. CHANGE IN SUPPLY

CHANGE IN QUANTITY SUPPLY

-The change in quantity supply is brought about by changes in prices, it is the movement of point within the same supply curve.

Activity 1

A) Explain the types of Demand on your own words and give example on each type.

B) Explain the law of demand and law of supply using a graph.

Activity 2

Based from your daily allowance, list your daily expenses showing that you are able to save one percent of your allowance.

	No	Not much	Yes, but	Yes	Wow!
Explained very well using proper grammar and simple terms/words	1	2	3	4	5
Provides relevant examples or situations based from daily experiences	1	2	3	4	5
Takes questions adeptly and answers them satisfactorily	1	2	3	4	5