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Chapter 2 The Prices of Goods and Services Group1 4

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31 views31 pages

Chapter 2 The Prices of Goods and Services Group1 4

Uploaded by

Jian Janell Viloria
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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CHAPTER 2:

THE PRICES OF
GOODS AND SERVICES
1. IN A MARKET ECONOMY OR
CAPITALIST ECONOMY, PRICES OF
GOODS AND SERVICES ARE
DETERMINED BY THE INTERACTION
BETWEEN SUPPLY AND DEMAND OF
GOODS AND SERVICE.

2. WHENEVER DEMAND IS
GREATER THAN SUPPLY, PRICES
INCREASE. ON THE OTHER HAND,
IF SUPPLY IS GREATER THAN
DEMAND, PRICES DECREASE.
3

PRICE

• Is the value of product or service. It is expressed in


terms of a monetary unit like peso, dollar, or yen.

• The price system is very important in the economy. It


determines the allocation of goods and services among
the members of society.
4

DEMAND
• Is the schedule of various
quantities of commodities which
buyers are willing and able ton
purchase at a given price, time and
place. It is determined by factors
such as;
▪ income
▪ population
▪ taste and preferences
▪ price expectation
▪ price of related good
5
DETERMINANTS OF DEMAND 7

• INCOME – people buy more goods and services when their


incomes increase.
• POPULATION – more people means more demand for
goods and services.
• TASTES AND PREFERENCES – demand for goods and
services increases when people like or prefer them.
• PRICE EXPECTATION – when people expect the prices of
goods to increase tomorrow or next week, they buy more
of these goods. In the same manner, they decrease their
demand for such products if they expect prices to decline
tomorrow.
• PRICES OF RELATED GOODS – When the price of a
certain product increases, people tend to buy a substitute
product (competitor).
LAW OF DEMAND
Consumers are most likely to
buy more goods and services
as price decreases, and buy
less goods and services as
price arises.
9

GENERAL TENDENCIES OF CONSUMERS CAN


BE EXPLAINED BY TWO REASONS:

INCOME EFFECT SUBSTITUTION EFFECT

• At lower prices, an • Consumers tend to buy


individual has a greater goods with lower prices.
purchasing power. This Incase of a product that
means he can buy more they are buying increase,
goods and services, but at they look for substitute
higher prices, naturally he whose prices are lower
can buy less
10

VALIDITY OF THE LAW OF


DEMAND
• The law of demand states: “as price increase,
quantity demanded decreases, and as price
decreases, quantity demanded increase.

• However, theory is only true if the assumption


of ceteris applied. Thus, the law of demand is
correct if the determinants of demand are held
constant; that is, there is no change in income,
taste, or population.
11

CHANGES IN DEMAND
VS.
QUANTITY DEMANDED
CHANGES IN 12

DEMAND
• refer to changes in the
determinants of demand like
income, population, price
expectation and so forth.
• Changes in Quantity Demanded
13

indicates the movement from one point to


another point (from price-quantity
combination to another price-quantity
combination on a fixed demand curve).

• The Demand Curve does not change its


position like that of the demand curve in the
changes in demand.

• The Changes in Quantity Demand is


brought about by changes in price.
THANK YOU
Mirjam Nilsson​
[email protected]
www.contoso.com
15

SUPPLY
• Is the schedule of various quantities
of commodities which produces are
willing and able to produce and offer
at a given price, place and time. Its
determinants are: ▪ Technology
▪ Cost of production
▪ Number of sellers
▪ Prices of other goods
▪ Price expectations
▪ Taxes and subsidies
Presentation title 16
DETERMINANTS OF SUPPLY
▪ Cost of Production ▪ Number of Sellers
▪ Technology – in producing goods, raw materials – more sellers of factories
are needed, together with laborers, increases the supply, conversely,
– this refers to the techniques therefore, if the price of raw
or methods of production. smaller number of sellers of
materials or the salaries od the of
factories means less supply.
Modern technology which the laborers increases the higher
Market price - 20 Cost of
uses modern machines cost of production. Higher cost of
production decreases supply, production - 15 Profit - 5 Market
increases supply. because the viability or profitability price - 23 Cost of production - 15
of the business decreases. Profit - 8

▪ Price Exploration
Prices of other
▪
– if producer expect process ▪ Taxes and subsidies
goods to rise very soon, they – certain taxes increase cost
usually keep their goods and of production. Higher taxes
– changes in the price the release them in the discourage production
of goods affect the market the prices are already because it reduces the
supply of such goods. high, this creates artificial earnings of businessmen.
shortage.
18

LAW OF SUPPLY
• ▪ “As price increases,
quantity supply also
increases, and as
price decreases,
quantity supply also
decreases.”
• ▪ However, it is only
correct if we apply
the assumption of
ceteris paribus, this
means, determinants
of supply must held
constant.
19

LAW OF SUPPLY
• If the price increases from
20 pesos to 23 pesos and
the cost of production
remains the same, the
producer gets swore
profit. Therefore, more
production will be
stimulated.
• But the price increases
and the cost of production
also increases. The law of
supply would not apply.
CHANGES IN SUPPLY 20

VS.
CHANGES IN QUANTITY SUPPLIED
• Changes in • Changes on
Supply pertain to quantity supplies
changes in the is brought about
determinants of by change in
supply. price.
21

THE LAW OF
SUPPLY AND
DEMAND
- in the market, supply
and demand interact
freely. Supply is
represented by
producers or sellers
while demand is
represented by buyers.
22
23
Presentation title 24
Presentation title 25
Presentation title 26
Presentation title 27
Presentation title 28
Presentation title 29
Presentation title 30
THANK YOU
Manuel, Michael Angelo
Mataag, Michelle
Ucol, Kyla

(group 1)

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