SS reviewer

OK! Coverage for end term exams

I) Demand

Lesson 22: Demand

Lesson 23: Factors that affect Demand
Lesson 24: Elasticity of Demand

II) Supply

Lesson 25: Nature of Supply

Lesson 26: Factors that influence elasticity of Supply

III) Market Equilibrium

Lesson 27: Sellers and Buyers

Lesson 28: Price Control or Price Support

IV) Market Structure

Lesson 31: Perfect Competition

Lesson 32: Monopoly and Monopsony
Lesson 33: Oligopoly and Monopolistic Competition
 I) Demand

Demand – number of goods or services that consumers are willing or able to buy at
alternative prices

To determine the demand of a person 2 characteristics should prevail:

-Capacity
-Willingness

Ways to show relationship of price and demand:

1) Demand Function – A Mathematical expression of a relationship of 2 variables.

It’s expressed like this example

Qd = 200 – 10P
Where: Qd – Quantity Demand
P – Price

2) Demand Schedule – A table showing the units of the product

- Shows inverse relationship of the 2 variables like this example:

Point Qd Price

A 0 20

B 20 18

C 40 16

3) Demand Curve – Graphical representation in the inverse relationship of the 2

variables

Qd
 Law of Demand – States that as price increases, consumers are less willing to buy
whereas as price decreases, consumers are much more willing to buy

Market Demand – A combination of all the demand of consumers in the market

Factors that may affect demand:

1) Income – If a consumer has high income he is more likely to buy.

- note: about the types of goods
- Normal Goods – as demand increases, income decreases
- Inferior Goods – Demand doesn’t increase even if income increases

2) Occasion – Whenever there’s a celebration or a special occasion, demand will

increase for that occasion
3) Preference – means a change in taste or preference for a particular product
- can be influenced by:
- Imported goods for Filipinos prefer to buy them
- Advertisement for this influences the consumers taste

4) Population – As population increases, so does demand

5) Expectation – When consumers hear about economic problems that may increase
the price of a certain product, he/she resorts to panic buying which will increase
demand
6) Price of related products:

- Substitute Products – as a products price increases, the demand for the

substitute product will increase for it is cheaper
- Complimentary products – let’s take burger and bread for example
As the price of the burger increases, not only will the demand of the
burger decrease but also the demand of bread.

Shift in demand curve

Factors are:
Factors are:
-Increase in Income
-Decrease in Income -Product Preference
-Price increase of Complementary -Expectation and Speculation
Products -Increase in # of consumers
-Consumers don’t speculate about price -Occasion
increase -Price decrease of complementary
-Decrease in # of consumers Products
-Price decrease of substitute goods
Elasticity of Demand

Elasticity – Measure of degree of responsiveness of the change in demand for product

because of price change

Types of Elasticity:

1) Elastic – for every 1% change in price, quantity demand will decrease by more
than 1%

Perfectly Elastic – Consumers can vary at a determined price

Inelastic – If price increases by 1%, the decrease of demand is less than 1%

Perfectly Inelastic – Consumers will buy the product even if it increases continuously

Unitary elasticity – if price increases by 1%, demand will decrease by 1%

How to compute elasticity for Demand

Formula:

Q2 – Q1

Q1 + Q2

P2 – P1

P1 + P2

II) Supply

Supply – Amount of goods and services available for consumption at different rates

Ways of showing relationship of supply and Price

1) Supply Function – Illustrated in this mathematical expression

- Note: as P increases, so does Qs

Example: Qs = -500 + 50P Qs = Quantity Supply

(dependent variable)
P = Price (Ind. Variable)

2) Supply Schedule – Table showing the relationship of the 2 variables

Point Qs P

A 0 10
B 100 12
C 250 15

Supply Curve – Graphical way of presenting the direct relationship of P and Qs

Qs
 Law of Supply- as price increases, so does supply. If price decreases, sellers are
willing to supply less

Market supply – total amount of all products or sellers in the market

Factors that influence supply

1) Technology – Use of modern machines and technological knowledge helps in

making producers make more supply
2) Expectation – Supply may increase/decrease depending on price speculation
3) # of Sellers - # of sellers will determine how much supply there is in the market
4) Costs – When tax rates increase, supply will decrease for production cost is high
5) Price of Related Products – Supply of complimentary products increase if the
price is high
- For substitution, supply of the substitute good will
Increase if the price of the primary product increases
7) Subsidy – If government will aid greatly to the suppliers/producers, supply will
increase
8) Weather/Climate – Weather conditions affect the supply of raw materials which
may affect the supply of a certain product

Shift in supply curve

Factors: Supply
Factors: supply Increase
decrease
-Use of efficient
-Lack of knowledge knowledge
-Calamities -high subsidy
-Lack of Subsidy -Increase in # of
-decrease in # of Sellers
sellers -Increase in price of
-low price of related related products
products
Supply Elasticity

Elastic – if price decreases by 1%, supply will decrease by more than 1%

Inelastic – If price decreases by 1%, supply will decrease by less than 1%

Unitary – Supply will decrease by 1% for every 1% decrease of price

How to compute supply elasticity

Formula

Q2 – Q1

Q1 + Q2

P2 – P1

P1 + P2

2
Market Equilibrium

Equilibrium – market condition wherein Quantity Supply (Qs) = Quantity Demand (Qd)
- Need to use both formulas of Qd and Qs (note both have to be equal)

In the schedule:

Qd P Qs

75 3 0
63 5 33
55 7 55
43 10 78

In the curve

Point of
Equilibrium

Change in Equilibrium can affect the ff (can be a positive or a negative change depending
on the factor)

1) Supply (sorry if it’s not so accurate)

2) Demand 3) Both
 Price Control and Price Support

Role of Government in Pricing – There are times when gov’t will set the price of
commodities to protect the public from sudden change in the market

Price Ceiling – refers to the highest/maximum price declared by the government for a
certain product

Floor Price – refers to the lowest price in buying certain products, usually applied to
the product of the farmers

III) Market Structure

Perfect Competition – When business men have absolute power to compete among
themselves.

The 4 characteristics:

1) Many Buyers and Sellers in the Market – If buyers and sellers are many, no one
can influence/control the market price
2) Homogenous Products – There’s no distinguishable marks or preference of
product.
3) Freedom to Enter and Exit the market – New players are always welcome and if
your product isn’t selling well, you can always leave.
4) Sufficient Knowledge – knows the present market condition or situation.

FORMULAS time!!:

For graphs where you need to find TR (total Revenue) and etc, here it is!!

TR (total Revenue) = P * Q
AR (Average Revenue) = TR/Q
TC (total cost) = given
Profit = TR – TC
MR = change in TR / change in Q
MC = change in TC / change in Q
Change in Profit = MR – MC
Monopoly – market structure with only 1 seller

Characteristics

1) One seller – given

2) Product Differentiation – Cant be substituted so easily
3) Barring the competition – Uses cutthroat competition to make competition leave

Oligopoly – number of producers are few

Characteristics

1) dominated by a few firms

2) Collusion or independence of firms
- they form a cartel wherein companies would agree on a price so it’ll be
fair
3) Products differ through advertising.
4) Banns others but less than monopoly

Monopolistic Competition – A combination of monopoly and perfect competition

Characteristics

1) Product differentiation
2) Many Firms
3) Free entry/exit
4) Interdependent decision making
5) Firms have some degree of market power

Goodluck and God Bless your Exam