What is Demand and Supply analysis?

Demand and Supply Analysis

-​ Fundamental concept in economics that forms the basis of
market behavior and price determination.

Difference:

Demand Analysis
-​ Examining consumer preferences, income levels, and the
prices of related goods.
Supply Analysis
-​ Production costs, technological advancements, and the
number of sellers in the market.

Demand and Supply Demand and Supply

-​ Law of Supply and Demand -​ Describe how goods and services are exchanged in the
-​ Supply and Demand Function market.
Demand
-​ Refers to the quantity of product that a consumer is willing to
buy at a given price.
-​ Reflects consumer desire and purchasing power.
Key points:
Willingness and ability: consumers are likely to buy goods if they
have the financial capability to buy it.

Inverse relationship: as the price of goods rises, the quantity

demanded goes down and vice versa.

Supply
-​ Refers to the quantity of product that a supplier is willing to
supply at a given price.
Key points:
Willingness and ability: Producers must be able to manufacture
products and be willing to offer it for sale.
​
Direct relationship : When the price of the product goes up, the
quantity supplied goes up.

Market Price Determination

-​ Describes how the prices of goods and services are
established in the market through the interaction of demand
and supply.
↪ensures that are allocated efficiently

Demand and Supply Function

-​ Mathematical representation of the relationship
between the quantity of a good and price.

Law of Demand ↑↓ (inverse)

-​ Ceteris paribus (all other factors are being equal)
-​ When the price of the commodity goes up, the quantity
demanded goes down.
-​ The inverse relationship shows that consumers are likely to
buy goods when it is cheaper and less expensive.
Demand Schedule

-​ A table that shows the quantity of goods and the prices that
a consumer is willing and able to buy.
-​ Relationship between price and quantity demanded.

Demand Function:

QD = f (P,I,T,Pr,E,N)

Where:

1.​ Price of the Goods

2.​ Income
-​ Higher consumer income increases the demand for
superior (luxury) goods while decreases the
demand for inferior goods.
3.​ Prices of Related Goods
-​ Substitutes and complements influence the
demand.
4.​ Consumer preferences
-​ Changes in tastes and preferences can shift
demand
5.​ Expectations about future prices
6.​ Number of buyers
-​ More buyers means increasing the overall demand.

Law of Supply
-​ When the price of the goods increases, the quantity supplied
also increases.
-​ Ceteris paribus (All are being equal)
-​ Producers are willing to produce and sell more of a good at
higher prices, since it is more profitable to do so.

Supply Schedule
-​ A table that lists the quantity supplied at different prices.
Supply Function
QS= f(P,C,T, Pr,E,N)

Where:

1.​ Price of the goods

2.​ Production Cost
-​ Higher production costs decreases supply
3.​ Technology
-​ Technology advancements can increase supply.
4.​ Prices of Related goods
-​ The prices of goods that substitute or complement
to the production can influence supply.
5.​ Expectations about future prices
-​ Expectations about future prices can affect current
supply.
-​ If the price of the product is expected to rise,
producers are likely to reduce current supply to sell
more in the future.
6.​ Number of Sellers
-​ More sellers in the market can increase overall
supply.
Market Equilibrium and Disequilibrium Equilibrium
-​ Equilibrium -​ Quantity demanded is equal to quantity supplied at a
-​ Surplus particular price. (they intersect)
-​ Shortage Surplus → leads to downward pressure on prices to meet equilibrium
-​ Factors affecting price -​ Above the equilibrium, excess in supply.
determination -​ Sellers are left with stock because they are offering more
-​ Quantity Demanded vs Demand product than buyers are willing to purchase at a certain
-​ Quantity Supplied vs Supply price. (kaunti lang bumili)
Shortage → leads to upward pressure on prices to meet equilibrium
-​ Below the equilibrium, excess in demand.
-​ Products are not enough to meet consumer’s demand.

Shifts: Factors affecting price determination

Shifts in demand - P,I,T,Pr,E,N

Shifts in Supply - P,C,T,Pr,E,N

QUANTITY DEMANDED VS DEMAND

Change in Demand : A change in demand occurs when factors

other than price affect the willingness or ability of consumers to
buy a product.
-​ Leads to the shift in demand curve
→ shifts to the right means increase in demand
→shifts to the left means decrease in demand

Change in Quantity Demanded : caused only by the change in price.

QUANTITY SUPPLIED VS SUPPLY

Change in Supply : shift of the supply curve caused by factor other

than the price of the product
→ production cost, technological advancements, government
policies
→ shifts to the right means increase in supply
→shifts to the left means decrease in supply (production
cost rise due to higher wages, or increase in raw materials
cost)

Change in Quantity Supplied : caused solely by a change in price.

​ Lesson 1
​ Demand and supply analysis
​ Price Elasticity
​ Production and Cost
​ Graph