THE LAW OF DEMAND AND SUPPLY

Some Terms To Remember:

Market- a place where buyers and sellers interact and engage in exchange. Demand- reflects the consumers desire for a commodity. Supply- the amount of a commodity available for sale. Aggregate Demand- the totality of group of consumers demand. Aggregate Supply- the totality of group of producers supply. Demand Schedule- the quantities producers are willing to offer for sale at various prices. Movement along the curve- a change from one point to another on the same curve. Shift of the curve- a change in entire curve caused by a change in the entire demand or supply schedule. Non-price factors- also known as parameters, are factors other than price that also affect demand or supply.

 Demand Function- shows how quantity demanded is dependent on its determinants. Supply function- shows how quantity supply is dependent on its determinants. Equilibrium- condition of balance or equality. Price Ceiling- is maximum limit at which the price of a commodity is set. Price Floor- a maximum limit beyond which the price of a commodity is not allowed to fall. Surplus- an excess of supply over the demand for a good.

DEMAND SCHEDULE AND DEMAND CURVE

Demand Schedule- shows the quantity of the product demanded by a consumer or an aggregate of consumers at any given price. In addition, the demand schedule must specify the time period during which the quantities will be bought. Demand Curve- is a graphical presentation of the demand schedule and therefore, contains the same prices and quantities presented in the demand schedule.

Table 2.1 Hypothetical Market Demand Schedule for X Per Week

Price of X (Per kilo) P 45 40 35 30 25 20 Quantity Demanded (in kilos) 100 150 200 250 300 350

THE LAW OF DEMAND

It states that as price increases, the quantity demanded of the product decreases, but as price decreases, the quantity price will instead increase.

Changes in Quantity Demanded and Movements Along the Demand Curve

Looking back at Figure 2.1,the consumers are willing to buy 250 kilos of x when price is 30 pesos. A drop in the price to 25 pesos will, however attract the consumers to increase their purchases to 300 kilos. This is a movement from point D to point E along the demand curve and is described as a change in quantity demanded.

Ceteris Paribus Assumption

Factors other than price which also influence the quantity demand: Tastes and preferences Income Expectation on future prices Prices of related goods like substitutes and compliments and the size of the population.

The Law of Demand now states,

Assuming other things constant, price and quantity demanded are inversely proportional.

Changes in Demand and Shifts in the Demand Curve

If the ceteris paribus assumption is dropped, then changes in the non-price factor shall take place. This will result in a change in the position or slope of the demand curve and a change in the entire demand schedule. The increase or decrease in the entire demand is shown through a shift of the entire demand curve and referred to as a change in demand. The demand curve may also shift to the left. Decrease in consumer incomes, a change in fashion or taste, a decrease in the price of a substitute good, may all cause the actual demand to decrease. This will be shown through a leftward shift in the demand curve.

SUPPLY
Supply-shows the sellers side of the market.
(Supply Schedule And Supply Curve) Supply of a product - is define as quantity that sellers are willing to sell. Supply schedule - shows the quantities that are offered for sale at various prices. Supply curve - is upward sloping from the left to right. - it shows a direct relationship between price and quantity supplied.

THE LAW OF SUPPLY

These include cost of production, availability of economic resources, number of firms in the market , technology applied, and producers goals. Law of Supply- states, other things assumed as constant, price and quantity supplied are direct proportional.

Changes in Supply and Shifts of the Supply Curve The ff. changes in the non-price factors may cause the corresponding shift in the demand curve: Increase in the number of sellers - shift to the right Decrease in the number of sellers- shift to the left Better technology- shift to the right Decrease in the cost of production- shift to the right Goals of the firm

MARKET EQUILIBRIUM
Alfred Marshall- British economist, has in mind when he combined the law of demand and the law of supply into one law. Market equilibrium-attained at the point where demand is equal to supply. - there is only one point in the graph where demand is exactly equal to supply. (Shifts To Both The Demand And Supply Curve) Point of equilibrium- is subject to change shifts in either the demand curve alone, or the supply curve alone, or in both the demand and supply curves at the same time. The Dynamics of Demand and Supply We shall now illustrate several examples of how we move from an original equilibrium to a new equilibrium position over time as a result of a shift of either the demand curve or the supply curve of a commodity.

SHIFTS IN DEMAND
Let us assume that these are the market demand and supply conditions for beef per day in Manila. We can see in the above graph that a price of 75 pesos, the quantity that consumers are willing to buy which is 1500 kilos, is equal to the quantity of the producers are offering for-sale which is also 1500 kilos. Therefore our equilibrium position, a price of 75 pesos and a quantity of 1500 kilos.

SHIFTS IN SUPPLY
We saw was a shift of the demand curve while the supply curve remained unchanged. Let us now illustrate what happens when it is the supply curve that shifts. Lets say that a breakthrough in cow breeding technology results in an increased supply of cows and more beef is now available in Manila.

Since improved technology is a non price determinant of supply, the entire supply curve shifts to the right resulting in anew equilibrium position. A lower equilibrium price of 65 pesos and a higher equilibrium quantity of 2000 kilos. The new supply curve reflects higher quantities of beef supplied at the given prices.

As a result of the change in the non-price determinant, the supply curve has shifted to the left. This new supply curve reflects smaller quantities of beef supplied at the various prices. The above change has resulted in a new equilibrium position at a higher equilibrium price of 80 pesos and a lower equilibrium quantity of 1000 kilos.

Simultaneous Shifts in Demand and Supply The graphs above showed initially, shifts in the demand curve with the supply curve unchanged, and later, shifts in the supply curve with the demand curve unchanged. The new supply curve reflects higher quantities supplied at various prices and the new demand curve reflects higher quantities demanded at various prices.

Violations of the Law of Supply and Demand A common way of attempting to go against the law is the use of price controls, where price ceilings are set by the government normally on basic goods. In the market, the equilibrium price of laundry soap is 20 pesos, at which 600 bars will be demanded and 600 bars will likewise be offered for sale.

 Supply and Demand: A short case It means that all things being constant; if the demand for a commodity is greater than the available supply, the price of that commodity increases. If the supply for a commodity decreases, supplier with too much stock on hand would be forced to unload that commodity even at low prices.

The supply and demand for tomatoes is a case in point. 1.By,Fred Reyes- he mentioned that summer usually brings with it a bumper crop of tomatoes. In Pangasinan- the prices are even lower, oftentimes dipping to as low as 3 pesosper kaing 30 kilos. 2. Max Carino- a tomato farmer of Catablan, Urdaneta,Pangasinan, for the last 20 years. He says,he stands to lose more if the crop is harvested.

 3. Juan Sireco- another farmer, says the lowest buying price of tomatoes he experienced was 2.50 pesos per kaing, while the highest was 100 pesos. 4. Adriano Mejia- barangay captain of San Jose.

For the tomato pickers lone;

We pay for the land preparation and every step in the cultivation of the plants. We spend for such inputs as fertilizers, pesticides, and seeds. We labor under the scorching summer sun for three months. We still have to pay for the transport of the crop.

 One of the best things that may happened to tomato farmers, is the establishment of a tomato paste plant, the Phil. Fruits and vegetables industries in San Jose, Pangasinan by the human settlements development corporation.

SUPPLY AND DEMAND AS APPLIED TO AGRICULTURAL ECONOMICS:

Farm prices are left to find their own level , they do two things: 1. They fluctuate wildly 2. a great deal of the time, they stand at levels w/c farmers and many others, consider impossibly low. The basic farm problem is further complicated by the results of wellintentioned legislation designed to remedy that problem.

 The study reveals the grain of truth in that overworked statement: You cant interfere with the laws of supply and demand. If this means that the government has no influence price,

Presenters :

Lizel M. Carandang Estelita M. Hernandez

Chapter 2