Econ Lesson 3: Market Demand and Market Supply

Microeconomics

One of the big branches of economics that deals with the study of an individual unit in the economy such as the individual consumer and firm.

Firm

An organization that transforms resources (inputs) into products (outputs). The primary producing units in a market economy.

Entrepreneur

A person who organizes, manages, and assumes the risks of a firm, taking new idea or a new product and turning it into a successful business.

Households

The consuming units in an economy.

Circular Flow of Economic Activity

It shows the connections between firms and households in input and output markets.

Output or Product Markets

the markets in which goods and services are exchanged.

Input Markets

the markets in which resources – labor, capital, and land, - used to produce products, are exchanged.

Opposite

Payments flow in the _________ direction as the physical flow of resources, goods, and services.

Buyer and Sellers

Markets bring together buyers and sellers in the product market or resource market.

Market

It exists as long as there are buyers and sellers who agree on the price; hence, a transaction takes place.

Market Price

the agreed price between firms and consumers.

True

True or False: It refers to the quantity of a product or service that the buyer is willing and able to purchase at a certain price.

False - equal

True or False: Ceteris Paribus assumption is when buyers want low price rather than a high price given all other things are unequal.

Higher

Law of Demand states that "the higher the price of the good, the lesser the quantity demanded" and vice versa.

Willing and able

A buyer is someone who is ________ and if he is ________ to buy the goods.

Demand Schedule

The simplest form of the demand relationship. It is merely a list of prices and corresponding quantities of a product or service that would be demanded over a particular time period by some individual or group of individuals at uniform prices.

Purchasing Power and Substitution Effects

Two basic reasons behind the increase in quantity demanded as the result of a price reduction.

Direct

Income has _________ relation for normal goods but if the product is an inferior good, its relationship to demand is inverse.

False - direct

True or False: Tastes and Preferences have an indirect relation to demand. If one's taste is in favor of the product, the higher will be the demand for it.

Price of Related Goods and Services

For substitute goods like rice and bread, if the price of rice increases, demand of bread increases, so the relation is direct but inverse for complementary goods like bread and butter. If the price of bread increases the demand for butter decreases.

Increase

Buyer's Expectations about Future Prices has direct relation to demand. If price is expected to increase, people tend to panic buy, hence, demand increases.

Demand Function

A mathematical description of the relationship of the price and demand.

48

Solve: If the Price of an HBW pen is Php 8.00 and the maximum quantity the market can absorb is 80, what is it’s quantity demanded based on the formula of demand function?

Increasing/To the left

What is the direction of the demand curve if In January the price of chicken per kilo is 280, 150 in February, and 100 in March; while, the quantity demanded is 1, 2, 3 respectively?

Change in Demand

occurs when there is a change in any determinants of demand such as income, number of buyers, price expectations etc. It is the shift in demand curve.

Change in Quantity Demanded

occurs when there is a change in the price of the good itself.

False - Demand Curve

True or False: Demand Schedule is a locus of points that shows the inverse relations between price and quantity demanded, all other things constant or equal.

Supply

It shows the different quantities of goods that sellers are willing and able to sell at any given time at various possible prices.

Law of Supply

Demonstrates the quantities that will be sold at certain prices. The supply curve shows an upward slope. This means that the higher the price, the higher the quantity supplied. Produces supply more at a higher price because it will mean higher value.

Production Cost

It has an inverse relation to supply. High _______________ discourages sellers hence there will be a decrease in supply.

Technology

It has a direct relation to supply. An improved __________ encourages producers hence, there will be an increase in supply.

Price of competing products

It has an inverse relation to supply. For farmers, play and corn are competing products, if the price of palay increases farmers will plant palay rather than corn its competing product, to take advantage of higher price of palay.

True

True or False: Product costs, Technology, Price of related goods, change in supply, Number of suppliers, and Firm’s expectations about future prices.

False - supply

True or False: Change in supply occurs when non-price of determinants of demand changes.

Equilibrium

It means that all forces in the market are in balance.

Market Equilibrium

If the quantity demanded is 30 and the quantity supplied is 30, a ______ occurs.

Quantity supplied

Surplus is the state where the amount by which the __________ of a product exceeds the quantity demanded at a specific price. It may only occur above the equilibrium price.

Shortage

The amount by which the quantity demanded of a product exceeds the quantity supplied at a specific price. It may only occur below the equilibrium price.

Higher than normal

If the supply is low and the demand is high then the price will be _________

Lower than normal

If the demand is low and the supply is high then the prices will be _________