“

III. II
Demand schedule & Demand
Curve
Supply schedule & Supply curve

” INSTRUCTOR: MS. DJ M.
FERNANDEZ
 DEMAND
Demand Schedule and Demand Curve
The demand for a product is defined as the quantity that buyers are
willing to buy. The demand schedule shows the quantity of the product
demanded by a consumer or an aggregate of consumers at any given
price. From our daily experience of buying and selling, we know that
higher prices influence people to buy less. Therefore, the demand
function shows how the quantity demanded of a particular good
responds to price change. In addition, the demand schedule must
specify the time period during which the quantities will be bought. This
is best illustrated in Table 2.
Table 2 Hypothetical Market Demand
Schedule For Good X Per Week

Price of X (per kilo) Quantity Demanded (in Kilo)

₱ 45 100
₱40 150
₱ 35 200
₱ 30 250
₱ 25 300
₱ 20 350
The quantity demanded values are rates of purchases at alternative prices. It can
be seen from Table 2 that at lower prices of X, people get attracted to buy more.
A demand curve is a graphical representation of the demand schedule and
therefore contains the same prices and quantities presented in the demand
schedule. Plotting the data from Table 2, we arrive at Figure3. The normal
demand curve slopes down-ward from left to right. Any point on the demand
curve reflects the quantity that will be bought at a given price.

THE LAW OF DEMAND

After analyzing the above relationship, we can now state that as price increases,
the quantity demanded of the product decreases, but as price decreases, the
quantity purchased will increase.
Changes in Quality Demanded
and Movements along the
Demand Curve

Looking at Figure 3, the

consumers are willing to buy 250
kilos of X when price is at P30. A
drop in the price to P5 will attract
the consumers to increase their
purchase to 300 kilos. This
movement from point D to point E
along the demand curve is
described as a change in quantity
demanded.

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Ceteris Paribus Assumption Ceteris paribus, as defined by J. Bruce Linderman, is Latin for "all else being equal. "The
ceteris paribus assumption says that none of the independent variables changes. They (all else) are equal
(unchanging). The economic "real world" is very complex; ceteris paribus simplifies such study by letting us ignore
other real world details while we look at specific factors. Let us now restate the Law of Demand by taking into
account that there are factors other than price which also influence the quantity of demand, namely:
1. income;
2. expectation on future prices;
3. prices of related goods like substitutes and complements;
4. size of the population;
5. quality of the product;
6. taste and preferences;
7. promotion and/or advertisement;
8. religion;
9. customs/traditions; and
10. fad or fashion.

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Therefore, the functional relationship between price and quantity
demanded is essential since these non-price factors are assumed
as constant. The Law of Demand now states, "Assuming other
things constant. price and quantity demanded are inversely
proportional."

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 Table 3
hypothetical increase in demand

Increase in Demand
Price of X (per kilo) Initial Demand (d1)
(d2)
₱ 45 100 150
₱40 150 200
₱ 35 200 250
₱ 30 250 300
₱ 25 300 350
₱ 20 350 400

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Changes in Demand and Shifts in the Demand Curve
If the ceteris paribus assumption is dropped, then changes in the non-price
factor shall take place. This will result in a change in the position or slope of
the demand curve and a change in the entire demand schedule. The
increase or decrease in the entire demand is shown through a shift of the
entire demand curve and referred to as a change in demand. For example,
if an increase in consumer incomes results in an increase in consumer
purchases of X, the effect will be reflected as seen in Figure 4.The graph
shows a shift of the demand curve from d1 to d2. This is a rightward shift and
reflects an increase in actual demand at every price level. At a price of ₱40,
the original demand amounted to 150 kilos per week; whereas, with the
increase in consumer income, the new demand corresponds to 200 kilos per
week. The demand curve may also shift to the left. Decrease in consumer
incomes in the price of a substitute good may cause the actual demand to
decrease. This will be shown through a leftward shift in the demand curve.

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The following changes in the non-price factors may cause the corresponding
shift in the demand curve:
increase in income shift to the right
decrease in income shift to the left
greater taste/preference shift to the right
less taste/preference shift to the left
increase in population shift to the right
decrease in population shift to the left
greater speculation shift to the right
less speculation shift to the left

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 SUPPLY
The concept of supply shows the seller’s side of the market.
Supply Schedule and Supply Curve.
The supply of a product is defined as the quantity that sellers are
willing to sell. The supply schedule shows the quantities that are
offered for sale at various prices. If the quantities offered are only of
one seller, then it is an individual supply schedule. The aggregate
supply quantities of a group of sellers are presented as a market supply
schedule.

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Let us look at the following market
supply schedule.
Price of X (per kilo) Quantity Demanded (in Kilo)
₱ 45 180
₱40 150
₱ 35 120
₱ 30 90
₱ 25 60
₱ 20 30

LITERATURE
CLASSICAL
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From the given schedule, we can see that higher prices serve as incentive
for the seller to offer more goods (X) for sale, while low prices discourage
them from offering more quantities to sell.
The market schedule from previous page can be depicted as a supply
curve. The supply curve contains the exact prices and quantities in the
supply schedule. In effect, it is the graphical representation of the supply
schedule (see Figure 5).
The supply curve is upward sloping from left to right. It shows a direct
relationship between price and quantity supplied. Any point on the supply
curve reflects the quantity that will be supplied at a given price.
After analyzing the relationship between price and quantity supplied, we
can now state that as price increases, the quantity supplied of a product
tends to increase; and as price decreases, quantity supplied decreases.

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Figure 5. Hypothetical Market Supply Curve for One Week
Changes in Quantity Supplied and Movements along the Supply
Curve

Let us study a point from Figure 5. Consider the price of X (good)

at ₱25 per kilo. At this price, the sellers will offer for sale 60 kilos of
X. Should there be an increase in price to P30, quantity supplied
will increase to 90 kilos. This is reflected as a movement along the
supply curve and is referred to as a change in the quantity
supplied. This is a change from point B to point C on the supply
curve and is caused by a change in the price of the good.

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THE LAW OF SUPPLY

As in the theory of demand, there are also non-price determinants that

influence supply. These include:
1. cost of production;
2. availability of economic resources;
3. number of firms in the market;
4. technology applied;
5. producer's goals;
6. Taxes and subsidiaries;
7. price of the product; and
8. price expectation.

Under the ceteris paribus assumption, these factors are again assumed
constant to enable us to analyze the effect of a change in price on
quantity supplied.
The Law of Supply now states, "Other things assumed as constant, price and quantity
supplied are directly proportional.“
Changes in Supply and Shifts in the Supply Curve
Once again, let us drop the ceteris paribus assumption, which means changes in non-price
factors shall now take place. This will likewise result in a change in the position or slope of
the supply curve and a change in the entire supply schedule. The increase or decrease in the
entire supply is also shown through a shift of the entire supply curve. Factors include the
use of improved technology, increase in the number of sellers in the market, and decrease in
the cost of production. Figure 6 shows a rightward shift of the supply curve from S1 to S2.
At a price of ₱40, where quantity supplied used to be 150 kilos, the new supply at that price
is 180 kilos which is on a point on the new supply curve. Thus, the rightward shift of the
supply curve is the effect of an increase in supply caused by a change in the non-price
factor. In the same manner, a leftward shift of the supply curve will reflect the decrease in
supply.

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The following changes in the non-price factors may cause the
corresponding shift in the supply curve.

· increase in the number of sellers - shift to the right

· decrease in the number of sellers -shift to the left
· decrease in the cost of production - shift to the right
· goals of the firm -it depends

LITERATURE
CLASSICAL
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