APPLIED ECONOMICS

Chapter 2
REVIEW OF
MARKET ANALYSIS
Specific Objectives

At the end of the lesson, you are expected to:

1. Define demand
2. Explain the law of demand
3. Show importance of the concept in real life situation.
Give 2 products (excluding food) that your family must
have in your house.

What is the brand of the each product?

Why these products are used?

DEMAND
Slide Title
Refers to the amount of goods
• Make Effectiveand Presentations
services consumers are
• Using AwesomewillingBackgrounds
to purchase given a certain
• Engage your Audience price.
• Capture Audience Attention
If the price of the good is low, the quantity
demanded for that good is high, considering that
other factors that might affect the willingness of
buyers to purchase a good are held constant.
Slide
Pt. Title
Price Quantit
y
• Make Effective Presentations
A 80 0
• Using Awesome Backgrounds
B 60 100
• Engage your Audience
C 40 200
• Capture Audience Attention
D 20 300

E 0 400
LAW OF DEMAND

As price increases, quantity demand or

willingness to buy the product decreases,
holding all factors constant.
Getting the Slope of the Demand Curve

The formula for the slope of

𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑃 𝑃2 − 𝑃1
𝐷= 𝑜𝑟
𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑄 𝑄2 − 𝑄1

where P1 is the initial price and Q1 is the initial

quantity of the product, and P2 is the final price and
Q2 is the final quantity of the product
 Given the figure as an example, let us try to
get the slope of the demand.
Let us use points A and B:
60 −80
Slope of D =
100 −0
−20
=
100
= /-0.2/
= 0.2
 Price Elasticity of Demand

it determines whether the demand curve is steep or

flat.

% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝐷𝑒𝑚𝑎𝑛𝑑𝑒𝑑

Ep =
% 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑃𝑟𝑖𝑐𝑒

𝑄𝑑2 −𝑄𝑑1
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑜𝑓𝑄𝑑
Ep = 𝑃2 −𝑃1
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑜𝑓𝑃
1. Unitary Elastic Demand Curve

% Change in Price = % Change in Quantity Demand

Ep = 1

Quantity Price
0 5
1 4
2 3
3 2
4 1
5 0
2. Relatively Inelastic Demand Curve

% Change in Price > % Change in Quantity Demand

Ep < 1

Quantity Price
0 100
5 80
10 60
15 40
20 20
25 0
3. Relatively Elastic Demand Curve

% Change in Price < % Change in Quantity Demand

Ep > 1

Quantity Price
0 5
2 4
4 3
6 2
8 1
10 0
4. Perfectly Elastic Demand Curve

Slope = infinity

Quantity Price
0 5
1 5
2 5
3 5
4 5
5 5
5. Perfectly Inelastic Demand Curve

Slope = 0

Quantity Price
3 10
3 8
3 6
3 4
3 2
3 0