Microeconomics: Demand, Supply, and Market Equilibrium Analysis

Market

is any place where sellers of particular goods or services can meet with buyers of those goods and services. It creates the potential for a transaction to take place.

Demand

It is the relationship between price and quantity demanded.

Needs

are things that we must have for us to live like food, clothing, or shelter.

Wants

are things that will give us a state of ease and contentment.

Law of Demand

All other things remained constant, (Ceteris paribus), price and quantity demanded are inversely proportional.

Change in Demand

Refers to the shifting of the whole demand curve. This is due to factors other than the price of the product.

Change in Quantity Demanded

Represents the amount of an economic good or service desired by consumers at a fixed price.

Surplus

Occurs when the quantity supplied exceeds the quantity demanded at a given price.

Shortage

Occurs when the quantity demanded exceeds the quantity supplied at a given price.

Equilibrium

The point at which the quantity demanded equals the quantity supplied.

Ceteris Paribus

A Latin phrase meaning 'all other things being equal' used in economic analysis.

Consumer Behavior

Demand is generally affected by the behavior of consumers.

Producer Behavior

Supply is usually affected by the conduct of producers.

Price Control

Government interventions that set price limits on goods and services.

Income Effect

The change in quantity demanded resulting from a change in consumer income.

Substitution Effect

The change in quantity demanded due to a change in the price of a related good.

Factors Affecting Demand

Include consumers' income, taste and preferences, price of related products, and number of consumers.

Profit Maximizers

Producers who aim to achieve the highest possible profit.

Cost Minimizers

Consumers who aim to spend the least amount of money.

Inverse Relationship

The law of demand states that when prices increase, quantity demand will decrease.

Desire to Possess

One of the three components of demand, indicating a consumer's interest in a good or service.

Ability to Pay

One of the three components of demand, indicating a consumer's financial capacity to purchase.

Willingness to Utilize

One of the three components of demand, indicating a consumer's readiness to use a good or service.

Demand Curve Shift

The change in demand or shifting of the whole demand curve either to the left or to the right depending on changes in the factor(s) that caused the shift.

Quantity Demanded

Refers to the movement or change in quantity demanded within the same demand curve, caused by the change in product's price.

Demand Schedule

A tabular presentation showing the price and quantity demanded for a particular good, indicating different quantities that will be bought by buyers at each of the given prices.

Demand Curve

A graphical representation of the law of demand that plots prices on a chart, showing that as prices decrease, demand increases.

Demand Function

Represents the relationship between the quantity demanded for a commodity (dependent variable) and the price of the commodity (independent variable).

Demand Function Formula

Mathematically represented as Qd = a - bPx, where Qd is quantity demanded, a is the intercept of the demand curve, b is the slope of the demand curve, and Px is the price of the goods.

Intercept of the Demand Curve

The value 'a' in the demand function formula, representing the quantity demanded when the price is zero.

Slope of the Demand Curve

The value 'b' in the demand function formula, indicating the rate at which quantity demanded changes with price.

Shift of the Demand Curve

Occurs when non-price factors change, resulting in a new demand curve.

Non-Price Factors

Factors that can cause a shift in the demand curve, including population, income, taste and preference, expectation, and related products.

Population

The number of buyers in the market; an increase in population leads to an increase in demand.

Income

A non-price factor that affects demand; as consumer income increases, demand for goods may increase.

Taste and Preference

Consumer preferences that can shift demand; changes in taste can increase or decrease demand for certain products.

Expectation

Consumer expectations about future prices or availability that can influence current demand.

Related Product

The price or availability of related goods (substitutes or complements) that can affect the demand for a product.

Example of Demand Schedule

At a price of P5.00, the buyer is willing to purchase 8 kilos of rice; at a price of P1.00, he is willing to buy 45 kilos.

Graphical Representation of Demand Curve

Typically starts high on the vertical axis and descends to the right, indicating that as prices decrease, demand increases.

Demand Analysis

The study of how various factors affect the quantity demanded of goods and services.

Movement along Demand Curve

Occurs when the price of a good changes, leading to a change in quantity demanded without shifting the entire curve.

Example of Demand Function Calculation

If Qd = 3 - 0.25(5), then Qd = 1.75 units of good A.

Forces that Cause Demand Curve to Change

Include changes brought by price factors and non-price factors.

Price Factor

A factor that causes movement along the demand curve due to changes in the price of the good.

Non-Price Factor

A factor that causes a shift in the demand curve, independent of the price of the good.

Demand Relationship

The relationship between price and quantity demanded by all consumers in the market.

Disposable income

It is part of income used by an individual to purchase the goods and services the individual or household needs.

Non-disposable income

It is part of income that is not used by households or individuals for their consumption, saved for future purposes.

Normal goods

Consumer products such as food and clothing that exhibit a direct relationship between demand and income.

Inferior goods

Goods whose demand drops as consumers' incomes rise; the term 'inferior' refers to affordability, not quality.

Public transportation

An example of an inferior good, as its demand falls as income rises.

Taste and Preference of Consumer

The behavior of consumers affected by weather, perception, information, and occasion.

Expectations of the Consumer

If people expect the price of goods to increase, they will want to buy it more at present before the price increases.

Occasional or Seasonal Products

Various events or seasons in a given year result in a movement of the demand curve with reference to particular goods.

Substitute goods

Two alternative goods that could be used for the same purpose, satisfying the same needs and wants.

Case No. 2.2

When the late 1990s came, most of the government agencies and some of the private companies took into consideration advanced studies as one of the requirements to promote an employee.

Case No. 2.3

Joseph, a carpenter earns Php 3,000.00 a month. After his promotion, his income increased to Php 5,000.00.

Normal good for Joseph

Rice is a normal good for Joseph, as his consumption increased with his income.

Inferior goods for Joseph

Sardines are inferior goods to Joseph, as his consumption decreased with his income.

Demand for halo-halo

In summer, demand for halo-halo increases, while during the rainy season, demand decreases.

Demand for flowers on Valentine's Day

The demand for flowers increases during Valentine's Day and decreases after.

Demand for Christmas decorations

During the Christmas season, demand for Christmas Trees, parols, and other decorations increases.

Price of Related Commodity

One of the non-price factors that affect the demand curve.

Example of normal goods

Examples include food, clothing, and household appliances.

Example of inferior goods

Public transportation tends to have an income elasticity of demand coefficient that is less than zero.

Changes in disposable income

They affect the current demand, and if overall income increases, disposable income is likely to also increase.

Income elasticity of demand

A measure of how much the quantity demanded of a good responds to a change in consumers' income.

Complement goods

Products that are bought and used together, like shoes and socks.

Luxury goods

Items with an income elasticity of demand greater than one, including expensive cars and vacations.

Expectations of Future Prices

Anticipations about future price changes that can influence current demand.

Supply

The relationship between price and quantity supplied, indicating how much sellers are willing to sell.

Law of Supply

States that price and quantity supplied are directly proportional, all other things being equal.

Supply Schedule

A tabular format listing changes in the number of goods offered for sale at varying price levels.

Supply Curve

A graphical representation of the relationship between quantity supplied and price.

Supply Function

A mathematical formula depicting the relationship between quantity supplied and price.

Cross-price elasticity of demand

A measure of how the quantity demanded of one good responds to a change in the price of another good.

Switching costs

Costs incurred by consumers when changing from one brand to another.

Consumer/brand loyalty

The tendency of consumers to continue buying the same brand due to preference.

Hypothetical Supply Schedule for Rice

A table showing the quantity of rice supplied at different price levels.

Quantity Supplied

The amount of a good that sellers are willing to sell at a given price.

Price Levels

The various prices at which goods are offered for sale.

Upward-sloping supply curve

Indicates that as the price of a good increases, producers are willing to supply more.

Mathematical function

A symbolic representation of the relationship between dependent and independent variables.

Quantity supplied of commodity X

Represented as Qs, which depends on its price Px.

Situation A in Supply Schedule

At a price of P5.00, the seller is willing to sell 48 kilograms of rice.

Situation E in Supply Schedule

At a price of P1.00, the seller is willing to sell 5 kilograms of rice.

Qs

quantity supplied at a particular price

a

intercept of the supply curve

b

slope of the supply curve

P

price of the goods sold

Change in Quantity Supplied

A movement from one point to another point along the same supply curve due to an increase or decrease in the product's own price.

Change in Supply

When the entire supply curve shifts leftward or rightward, affecting the amount of a good or service supplied at the same price.

Determinants of Supply

Factors that influence the supply of a product or service.

Firm Goals

Objectives of an organization that affect the supply of merchandise, such as sales maximization, employment maximization, and profit maximization.

Cost of Inputs or Factors

The costs associated with production factors like land, labor, capital, and entrepreneurship that determine the supply of products.

Technology

The use of new innovations that save resources and reduce production costs, leading to increased supply.

Government Policy

Taxation, subsidies, and policies that influence the supply of goods.

Expectations

Producers' anticipation of future price changes that affect their current supply decisions.

Costs of other Commodities

The impact of the prices of related products on the supply of goods.