Discussion Outline

• I. Definition of the Basic Concept

• a. Demand / The Law of Demand
• II. Determinants of Demand
• III. Ways of Measuring Demand
• a. Demand Schedule
• b. Demand Curve
• IV. Income Effect & Substitution Effect
• V. Non-Price Determinants of Demand
DEMAND
refers to the entire relationship
between the quantity demanded of
a product and the price of the
product.
Two Important Elements
( Determinant ):

• 1. The willingness or the desire to buy

• 2. The ability to buy which pertains to the

purchasing power of the consumers.
Law of Demand:
• The Law of Demand is the basic Theory of
Consumer Choice. It States that all things being
equal, as the price of a certain good (service)
goes up, the quantity demanded decreases. And
as the price goes down, the quantity demanded
increases. Therefore, the relationship that we see
between the price and the quantity demanded of
a commodity is inverse or negative.
How to Measure
Demand
• 1. Demand Curve

• is a graphic representation of data presented in

the schedule of demand.
8
7

4
3

10 20 30 40
Demand Curve

Price
Demand Curve for Pineapple

Quantity Demanded (Qd)

 2.Demand Schedule
• is the tabular version depicting the relationship
between price and the quantity demanded of a
certain good at alternative prices, ceteris
paribus.
Demand Schedule

PRODUCT PRICE (P) DEMAND (Qd)

1. Rice (2017) P 48.00 Kilo 1,000 metric tons
Rice (2018) P 50.00 Kilo 700 metric tons
2. Television (2017) P 14,000 10 million units
Television (2018) P 10,000 20 million units
3. Chicken (2017) P 100.00 kilo 500,000 kilos
Chicken (2018) P 110.00 kilo 400,000 kilos
Income Effect and Substitution
• The increase in the Quantity Demanded (Qd)as
a result of a decrease in price may be attributed
to two significant causes, namely; The Income
effect and the Substitution effect.
• Increases purchasing power of the consumer as
a result of decrease in the price of a commodity.
• Example: Salary Increases -Demand Increases
• Buying 8 apples instead of 5 apples due to
Increase in Income . As a result DEMAND for
apple likewise increases.
The Substitution Effect

• A change in the consumption of specific goods and

services as a result of an increase in price. When a
good becomes more expensive, consumers tend to
find substitutes that are cheaper.

• Example: Iphone vs. Vivo

• 5 star Hotel vs. 3 star Hotel

• Juice/Soda vs. Water
Non- Price Determinants of
Demand
1.Taste and Preferences

• People’s preferences for goods vary because of

style, quality, personal views or consumption, or
status characteristics.

• Example:
• Filipinos - Chinese Products
• Japanese -U.S /European Products
2. Income
• Influences consumers’ demand.
As your income increases, your
demand for higher quality goods
will also tend to increase.

• Types of Goods

• A. Normal Goods are products for which demand is

positively related to income.

• B. Inferior Goods are products for which demand is

inversely related to income.

Example: Ordinary Car vs. BMW Car

3. Prices of Related Goods
• The price of goods is important, but
prices of related products also influence
demand.
• A. Substitute Goods are those that consumers
buy as replacements of the goods whose prices
have gone high.
• B. Complementary Goods are the
consumption of one entails the consumption of
the other.
• Example: Sony Television P 14,000
• Toshiba P 10,000
4.Number of Buyers

• an increase in the number of consumers in a

market will increase demand. Fewer consumers
will decrease demand.

• Example:
• 2017 2018 Demand
• 1 million consumers 2 million increase
5. Traditions

• the influence of traditions on consumers’

demand is significantly observed during the
celebration of special occasions such as
Christmas, Valentines etc.

• Example:
• Jan.-Aug. Sept. –Dec.
• Demand for Ham 5 million 30 million
• ***E
 ACTIVITY
Group Dynamics:
Prepare a song , a
poem or a short skit
about how Demand
and Price affect the
decision making or
choice of consumers
.
Quiz
• 1. It shows the relationship between the
quantity demanded and the price.
• 2-3. The important elements of Demand.
• 4. The tabular representation of demand and
price.
• 5. The graphic representation of demand and
price.
• 6-10. Give the Non-price determinants of
demand.
Ranges of Elasticity
• Elastic Demand: a given percentage change in
price results in a larger percentage change in
quantity demanded.
• Inelastic Demand: a given percentage change
in price results in a smaller percentage in
quantity demanded.
• Unitary Demand: a given percentage change
in price results in an equal percentage change in
quantity demanded.
Ranges of Elasticity
• Perfectly Elastic Demand: even without a
change in price, there is an infinitely large
percentage change in quantity demanded.
• Perfectly Inelastic Demand: a given
percentage change in price results in no change
in quantity demanded.
GOODS WITH PRICE-ELASTIC DEMAND

• Those which have numerous close substitutes.

• Those which are considered as “Luxuries”
• Those which have more uses.
GOODS WITH PRICE INELASTIC
DEMAND
• Those which people consider as necessities
• Those which have no substitutes.
• Those on which as insignificant part of income is
spent.