The Demand Schedule

The demand for a certain product emanates from

The willingness to buy a certain product &
The capacity or ability to buy such product.

There is a definite relationship between the market price of a good and the quantity that consumers are
willing to buy. This relationship is known as the demand schedule which is represented by the demand
curve.

The Demand Curve

The Demand Curve is the graphical representation of the demand schedule.
It is a downward sloping curve.
It shows the inverse relationship between the price and quantity of goods that consumers are
willing to buy.

Factors that affect the Demand Curve

1. Average income
As the average income of people and households increases, the demand for specific
goods also increases.
2. Population Size & Demographics
As the population increases, more people will use commodities.
As more members of the population enter adulthood, the demand for specific products
that are being used by this specific age group also increases.
3. Price of Related Goods
Substitute Products are commodities the decreases the use of another product when
more of these other product is used.
Note: substitute products change and move in the opposite direction.
Complementary product are commodities that decreases the use of another product
when less of the other complement is used-and vise versa.
Note: they change in the same direction.
4. Taste of Buyers
Influences buying decisions but is more difficult to assess.
5. Other particular factors include climate and weather.

The Demand Shift

An increase in the actual demand for a certain product causes the demand curve of that
commodity to shift to the right
A decease in the actual demand for a commodity causes the demand curve of that
product to shift to the left.
Remember that:
1. A shift to the left corresponds to an actual decrease in demand
2. A shift to the right corresponds to an actual increase in demand &
3. There is a Movement along the Curve if only the prices of products are
manipulated.

The Supply Schedule

The supply schedule shows the relationship between the supply of a good and its market price
holding all other things equal.

The Supply Curve

It is an upward sloping curve.
It shows the direct relationship between the price of a good and the quantity that producers are
willing to produce or sell.

The Supply Shift

A shift to the left corresponds to an actual decrease in supply
A shift to the right corresponds to an actual increase in supply
 There in only a movement along the curve if only the price of products are manipulated.

Supply and Demand Interactions

Supply and Demand forces are not static. In fact they interact dynamically.

At a certain price, buyers are willing to buy a certain quantity. Also at the same price suppliers are willing
to produce and sell the same quantity. This price and quantity is depicted by Equilibrium Point.

Equilibrium Point

The equilibrium point may have a number of technical definition:

It is the point at which the supply curve intersects the demand curve
It is the point of perfect combination where supply is just equal to demand.

But its most technical and elegant definition is as follows:

The equilibrium is the point at which the price (P) an Quantity (Q) of the commodity that the
buyers are willing to buy, is just equal to the price (P) and Quantity (Q) that producers are willing
to produce and sell.

Logical Steps to Assess the Supply and Demand Interactions

Step 1: Determine the factor or event that will have an effect on either the Supply and Demand curve.
Step 2 : Determine what curve will be affected. Supply or Demand?
Step 3: Determine what factor/s affecting the specific curve will affect the curve.
Step 4: Given the factors coming into play and its effect on the specific curve, determine how the curve
will react or be affected. This can either;
a. Shift to the right
b. Shift to the left or
c. Move along the curve
Step 5: Given the movement or the effect on the curve, plot the new equilibrium point
Step 6: Given the new equilibrium point, plot and assess the new price and quantities of the new supply
and demand curve interaction.

Case Study
Using Supply and Demand Concepts to Control Smoking Among Teenagers

The Department of Health Secretary is worried about the current findings on smoking on Filipino
teenagers (high school and college students). It is shown that the prevalence of smoking among this age
group is about 14.2% and increasing steadily.
The Department of Health Advisory Committee on Anti-Smoking is then created and tasked to
find alternative ways of controlling this pressing problem. This does not only give them the problem of
seeing bad habits among the youth but the development of more problems in the future. With increase
in smokers, we can expect higher incidence and prevalence of COPDs, lung cancer in the future the
economics effect if such will be tremendous. Therefore the objective of the committee is to find ways of
decreasing smokers among youth. The committee is able to narrow their options into three most
plausible alternatives.

Option 1.

Launch a tri media (TV, radio, print) campaign to highlight the ill consequences of smoking. The
Advisory Committee can ask the Department of Health to secure funds to do this undertakings. It was
estimated that they will spend about Php 95 Million to hire media personalities to participate, take part
in TV programs, air on radio stations and do print materials that will all send a very clear message:
Smoking is dangerous and it kills

Option 2.

Impose an additional 30% tax on cigarettes. The Department of Health can find a legislator to
introduce a bill in congress imposing a 30% additional tax on cigarettes. They have found a likely
candidate but know it would take a majority vote for it to be passed in the Congress and then will also
be scrutinized in the Senate. This will entail a lot of expenses for the DOH.

Option 3.

Impose a national ID system that will identify those who are less than 18 years. Stores will not
allow them to buy cigarettes. This option will entail requiring all persons buying cigarettes to show a
government-issued ID indicating that the person is 18 years old and above, before he or she is sold a
cigarette.

Activity

I. Describe the characteristics of the target group (teenagers). List down five characteristics of the target
group that may affect the feasibility of using the different options.

II. Quantitative Assessment: Evaluate each option economically. Study the effects of each option on the
supply and demand curves. Use graphs by applying the step-by step approach.

III. Qualitative Assessment: Evaluate the advantage and disadvantage of each option.

IV. After the Quantitative and Qualitative evaluation, choose a single option which you think will be
most effective and explain why?