DEMAND
Definition of Demand
Law of Demand
Demand Function
Factors Affecting Demand
Economics 9 in Focus pages 99-108
Price Elasticity of Demand
LEARNING TARGETS
[Link] demand
[Link] the Law of Demand
[Link] the concepts and the factors that affect demand
4. Relate the concepts of demand to everyday life.
[Link] the role of the government in regulating
economic activities.
REVIEW
In Economics, which term is synonymous with satisfaction or
happiness?
UTILITY
REVIEW
This Economic law states that as more units of a product
are consumed, the satisfaction received from consuming
each additional unit declines.
Law of Diminishing Marginal Utility
REVIEW: LAW OF DIMINISHING MARGINAL UTILITY
Remember: UTILITY = SATISFACTION = HAPPINESS
Marginal Utility - the difference of the total utility of the
first consumption from the second consumption
Law of Diminishing Marginal Utility
- as the consumption of the same good or service
increases; the satisfaction derived from the consumption
of the added good/service decreases
UTILITY IS RELATED TO THE CONCEPT
OF DEMAND
Demand - refers to the willingness of
CONSUMERS to buy a good or service given
different price levels
GRAPH OF THE DEMAND CURVE
30
25
20 Primary Factors Affecting
Demand:
PRICE
15
1. Price
10 2. Quantity Demanded
0
50 100 150 200 250
QUANTITY DEMANDED
LAW OF DEMAND
With other things held constant (ceteris paribus), AS THE PRICE (P)
OF A GOOD OR SERVICE INCREASES; QUANTITY
DEMANDED (Qd) DECREASES
There is an inverse relationship between Price and Quantity
demanded.
if P ; Qd or P ; Qd
DEMAND IS A FUNCTION OF PRICE
Qd = f(P)
Qd = dependent variable ( x-axis)
P = independent variable ( y- axis)
DEMAND EQUATION
Quantity Demanded ( Q D) = a - (b)(Price)
or
QD = a - bP
where:
Qd = Quantity Demanded
a = constant ( Qd when price is Zero)
b = slope ( change in Qd/Change in Price)
P = Price
DEMAND SCHEDULE
Given: Qd = 350 - 6P
PRICE QUANTITY DEMANDED
10 290
15 260
20 230
25 200
30 170
EXERCISE 1
The table below shows the individual demand of marshmello of Gabriel at different prices
assuming that his allowance is P100. Graph the individual demand curve of Gabriel.
PriceQuantity
P 2.00 50 pcs
P 2.50 40 pcs
P 4.00 25 pcs
P 5.00 20 pcs
P 10.00 10 pcs
GRAPH OF THE DEMAND OF MARSHMELLO
OF GABRIEL AT DIFFERENT PRICES
PRICE
10
0
10 20 30 40 50
Quantity Demanded
EEXERCISE 2
Given the Demand Equation: Prices Qd
Qd = 1450 - 25(P) A P 15.00
Complete the table on the right B P 19.00
C P 23.00
D
(Answer in 3 minutes on a piece of paper) P 27.00
E P 30.00
Qd = 1450 - 25(P)
Prices Qd
A P 15.00 A. 1450 – (25)(15) = 1,075
B P 19.00 B. 1450 – (25)(19) = 975
C P 23.00 C. 1450 – (25)(23) = 875
D P 27.00 D. 1450 – (25)(27) = 775
E P 30.00 E. 1450 – (25)(30) = 700
REMEMBER!!
When the price changes, the quantity demanded also
changes. But the change happens within the same demand
curve/graph.
What will happen to the demand curve if another factor
aside from the price and quantity affects demand?
FACTORS AFFECTING
DEMAND
SYNCHRONOUS CLASS (DAY 2)
Analyze the situations that
follow and predict what will
happen to Demand: will it
INCREASE or DECREASE?
SITUATION 1
Recent scientific study says that consuming milk
tea has lots of health benefits contrary to previous
findings.
What do you think will happen to the demand of
milktea?
SITUATION 2
We are in the last quarter of the year with Christmas
just around the corner. Households start to put up
their Christmas decorations.
What do you think will happen to the demand of
Christmas decorations?
SITUATION 3
Food and Drugs Authority (FDA) approved that
Remdesivir can be used to treat COVID-19.
What do you think will happen to the demand of
Remdesivir?
SITUATION 4
A number of livestock farms in Luzon were damaged by Typhoon
Quinta. This drove the price of pork and other pork product to
increase.
What do you think will happen to the demand of chicken as a meat
substitute to pork?
FACTORS THAT AFFECT
DEMAND
1. INCOME
2. PRICE OF SUBSTITUTE GOODS
3. PRICE OF COMPLEMENTARY GOODS
4. CONSUMER EXPECTATIONS of FUTURE PRICES
5. TASTE AND PREFERENCE
6. POPULATION
INCOME
If income increases, with Price and other factors are held constant,
demand for goods and services also increase
Income increases; Demand increases
( Demand curve shifts to the right)
Income decreases; demand decreases P
( Demand curve shifts to the left)
D D1 D
Qd
1. Normal Goods - goods whose demand rises as consumer income increases
Example: people who used to buy rice ( ex. per kilo everyday) will buy by
sack (25 or 50 kg) with an increase in income.
2. Inferior Goods - goods whose demand decreases as income increases
Example: After receiving a cash gift from Ninong, Sally bought Dakasi milktea
instead of her usual P35 milktea.
PRICE OF SUBSTITUTE
GOODS
Substitute Goods - goods/service that satisfy the same requirement
or serve the same purpose as another good
Examples: butter instead of cheese spread or Milo instead of
Ovaltine; Goya cocoa powder instead of Hershey's
Perfect Substitute
Imperfect Substitute
PRICE OF
COMPLEMENTARY GOODS
Complementary goods are goods that are used together
Examples: printer and ink
whiteboard and whiteboard marker
gas stove and LPG gas
CONSUMER EXPECTATION
OF FUTURE PRICES
- refers to how consumers behave when they expect a change in the
prices of goods/services in the future.
Example: There is an announcement of oil price increase next
week.
This will lead the consumers to buy oil this week. The demand of oil
this week will increase in anticipation to the increase in the price of
oil next week.
TASTE AND
PREFERENCE
- consumer taste and preference also affects demand.
Example:
With the Hallyu wave, people seems to be enamored by
everything Korean. This led to the increased demand for Korean
food, cosmetics, movies, songs, etc.
POPULATION
the greater the population; the greater the demand
ACTIVITY TIME!!!
Read and analyze the situations that follow. Identify
how the factor affects demand : will demand increase
or decrease?
1. SITUATION: WITH THE PEOPLE BELOW FOURTEEN (12) YEARS
OLD STILL CANNOT GO OUT UNLESS IT’S NECESSARY, WHAT WILL
HAPPEN TO THE DEMAND OF AMUSEMENT PARKS AND
PLAYGROUNDS?
Answers:
Effect on Demand: Demand decreases ( demand curve shifts to the left)
Illustration:
PAG-ASA AND NDRRMC ANNOUNCED THAT THE LPA
CLOSE TO THE COUNTRY WILL DEVELOPE INTO TROPICAL
STORM AND WILL AFFECT THE EASTERN SEABOARD OF
THE COUNTRY. PEOPLE WERE ADVISED TO STORE ON
EMERGENCY ESSENTIALS PARTICULARLY FOOD.
Effect on Demand:
PRICE ELASTICITY
OF DEMAND
ELASTICITY DEFINED
Elasticity is defined as the “responsiveness” of quantity
demanded to any change in price.
- ratio of the percent change in one variable to the
percent change in another variable.
ELASTICITY OF
DEMAND
- the measure of the degree of responsiveness of quantity demanded of a
product to a given change in one of the independent variables which affect
the demand for that product
a. Price Elasticity of Demand - responsiveness of consumers’ demand to the
change in price of the good sold
b. Income Elasticity of Demand - responsiveness of consumers’ demand to a
change in their income
c. Cross Elasticity of Demand - responsiveness of demand for a certain good,
in relation to changes in price of other related goods
PRICE ELASTICITY OF DEMAND
Elastic - a small change in price leads to a bigger change in demand
Inelastic - a change is price leads to a small change in demand.
PRICE ELASTICITY OF
DEMAND
PED = % Δ Qd
%ΔP
% Δ Qd = percentage change in quantity demanded
% Δ P = percentage change in price
PRICE ELASTICITY OF
DEMAND
1. POINT METHOD 2. ARC METHOD
PED = (Q 2 - Q1) / Q1
(P2 - P1) / P1 PED = Q2 - Q1 P2 - P1
÷
(Q2 + Q1) /2 (P2 + P1) /2
Elastic Demand = PED > 1
Inelastic Demand = PED < 1
Unit Elastic Demand = PED = 1
Note: ( Get the absolute value of the answer since the Law of Demand
states that Price changes INVERSELY with Quantity Demanded)
THINK TIME!!!
When can you say that the good/service is elastic?
THINK TIME!!!
When can you say that the good/service is inelastic?
ELASTICITY IN
EVERYDAY LIFE
Goods that have lots of substitutes usually have ELASTIC DEMAND.
Goods that are deemed necessities usually have INELASTIC
DEMAND
TELL WHETHER THE FOLLOWING
GOODS ARE ELASTIC OR INELASTIC
1. toothpaste and toothbrush
2. electricity provided by CENECO
3. bottled water
4. quality education ( long run)
5. milk tea
TELL WHETHER THE FOLLOWING
GOODS ARE ELASTIC OR INELASTIC
1. toothpaste and toothbrush - ELASTIC
2. electricity provided by CENECO - INELASTIC
3. bottled water - ELASTIC
4. quality education ( long run) - INELASTIC
5. milk tea - ELASTIC
