SCARCITY, DEMAND, AND

SUPPLY
 ➢works in the free market by
SCARCITY supply and demand, which
can fluctuate the price of a
good or service over time,
when there is more or less of
it available.
➢Extremely high pricing can
create less demand in
response and some companies
may look to other alternatives
 ➢happens when the demand for
SCARCITY a natural resource, product or
service exceeds the supply.
➢It often implies that the
current level of use of a
natural resource is
unsustainable in the long-
term, most often for these two
kinds:
➢Non-renewable resources
➢Renewable resources
 ➢Non-renewable
SCARCITY resources: Natural elements like
oil and precious metals that
cannot be replenished once gone

➢Renewable resources: Natural

elements that are consumed
faster than the ability to be
replenished, like fresh water, fish
and trees
 There are three chief causes of scarcity
What are in the economy:
• Demand scarcity: When there is a high

the demand for a resource or product, due

to increasing populations or changes in
preferences

causes of • Supply scarcity: When the supply or

resource is low or out, due to weather,
disasters or resource depletion
scarcity? • Structural scarcity: When there is
mismanagement or inequality of
access to populations, often because
of politics or location
 ✓Land ✓Healthcare
What are ✓Housing ✓World health
issues
examples ✓Overuse
✓Seasonal
✓Commodities shortages
of ✓Water ✓International

scarcity? ✓Labor
diplomacy
✓Weather and
natural disasters
✓Fixed roadways
Budget and choices of
consumers
 ➢A budget constraint is a
Budget constraint imposed on consumer
choice by their limited budget.

CONSTRAINT ➢limited incomes are the primary

cause of budget constraints
➢The effects of the budget
constraint are evident in the fact
that consumers can't just buy
everything they want and are
induced into making choices,
according to their preferences,
between the alternatives.
 Types of Budget Constraints
Budget ➢Limited amount of money to

CONSTRAINT spend on the things we need

and want.
➢Limited amount of time.
Difference between Budget Set and
Budget Constraint

Budget Set Budget Constraint

➢is a set of all possible ➢represents all the possible
consumption bundles given combinations of two or more
specific prices and a particular goods that a consumer can
budget constraint. purchase, given current prices
and their budget.
➢budget constraint line will show
all the combinations of goods you
can buy given that you spend all
the budget you allocate for these
particular goods.
 Formula for Budget Constraint
Budget
CONSTRAINT ➢P1 is the price of the first good
➢P2 is the price of the second
good
➢Q1 is the quantity of the first
good
➢Q2 is the quantity of the second
good
➢I is the income or budget
 Example:
Budget You have an income of 10,000

CONSTRAINT pesos and you're considering

two goods: Apples (A) and
Bananas (B). The price of an
apple is 50 pesos, and the price
of a banana is 20 pesos.
 ➢examines why people make the
Consumer economic choices they do when
facing trade-offs, restrictions, and

choice changes in their environment that

affect their ability to consume.
➢No matter how many goods a
consumer has to choose from,
every choice has an opportunity
cost, i.e. the value of the other
goods that aren’t chosen.
➢The budget constraint framework
assumes that sunk costs should not
affect the current decision.
 Consumer choice theory helps us
Consumer understand a consumer's behavior
that results from the combination

choice of their income and preferences.

The price of a good is an
important factor in a consumer's
decision-making. A consumer will
not just buy whatever fits their
budget, that would likely not be
satisfactory. They will make a
choice that satisfies
their preferences.
Opportunity cost
 • Opportunity cost is the forgone
Opportunity benefit that would have been
derived from an option not
cost chosen.
• To properly evaluate opportunity
costs, the costs and benefits of
every option available must be
considered and weighed against
the others.
• Considering the value of
opportunity costs can guide
individuals and organizations to
more profitable decision-making.
 • consider not only explicit
Opportunity alternatives—the choices and

cost costs present at the time of

decision-making—but
also implicit alternatives,
which are “unseen”
opportunity costs.
 Example of Opportunity cost

Deciding to buy a 7$ strawberry

Smoothie or not.

1.How much do I
value this?
2.What am I giving
up now to have this?
3.What am I giving
up in the future to
have this now?
Difference between Opportunity cost
and sunk cost

Opportunity cost sunk cost

➢are forward looking, ➢refers to the resources
with the goal of you have “sunk” into a
understanding what particular project or goal
future value you may in the past.
miss out on by making
a financial decision for
your business.
 • The concept behind opportunity
Using cost is that, as a business owner,
your resources are always
opportunity limited.
• If you choose one, you
cost to necessarily have to give up on
others. They are mutually
exclusive. The value of those
invest your others is your opportunity cost.
• It’s about keeping in mind that
resources one action or choice can
preclude you from taking
advantage of other options.
Opportunity cost
How many burgers and bus tickets can Charlie buy?
• Charlie’s budget equation:
$10=$2×Q1+$0.50×Q2
 20
18
16
14
12
BURGERS - $2

10
8
A (0,5)
6
B (4,4) C (8,3)
4
D (12,2) E (16,1)
2
F (20,0)

0 2 4 6 8 10 12 14 16 18 20
BUS TICKET – 0.50 CENTS
O pportunity cost

POINT DRESSES SHOES

A 5 0
B 4 2
C 3 4
D 2 6
E 1 8
F 0 10
 12

10
DRESSES -$100

6
A (0 , 5) B (2 , 4)
4
C (4 , 3) D (6 , 2)
2
E (8 , 1) F (10 , 0)
0 SHOES
0 2 4 6 8 10 12 -$50
 demand and
demand curve
 • Demand is the relationship between
demand price and quantity demanded. It is also
defining as the amount of goods and
services that the consumer/
buyer/end-user are willing and able to
consume/buy/use in different prices at
a particular time.
• Demand is based on needs and
wants—a consumer may be able to
differentiate between a need and a
want, but from an economist’s
perspective, they are the same thing.
Demand is also based on ability to
pay. If you can’t pay for it, you have
no effective demand.
 • The amount of a good that a
Quantity buyer is (buyers are) willing
and able to purchase during a
demand specified period of time.
• Quantity demanded refers to a
particular number of units.
• The relationship between price
and quantity demanded is
known as the demand
relationship.
 • A rise in the price of a good or service
Law of almost always decreases the quantity of
that good or service demanded.
Conversely, a fall in price will increase the
demand quantity demanded. When the price of a
gallon of gasoline goes up, for example,
people look for ways to reduce their
consumption by combining several
errands, commuting by carpool or mass
transit, or taking weekend or vacation trips
closer to home. Economists call this
inverse relationship between price and
quantity demanded the law of demand.
The law of demand assumes that all other
variables that affect demand are held
constant.
 Demand
Schedule
The demand schedule shows the
tabular representation of the relationship
between the quantity of a good demanded
and the price of that good. Other factors that
may affect the quantity demanded, such as
the prices of other goods, are held constant
in drawing up the demand schedule.
 Demand
Curve
Demand Curve is the curve that
shows relationship between price and
quantity demanded.
It is downward sloping which implies that
there is negative relationship between price
and quantity
demanded.
Difference between individual demand
and market demand

individual demand market demand

➢Individual demand ➢Market demand is the
refers to the demand sum of the individual
of an individual demands of all
consumer consumers in the
market
supply and supply
curve
 • Supply is the relationship between
Supply price and quantity supplied.
• It is the total amount of goods and
services that the
sellers/supplier/producer are willing
and able to sell/supply/ produce in
different prices at a given period of
time.
• This is the inverse of the demand.
• Supply has positive relationship
with price. This is state on the law
of supply
 • Law of Supply states that as
law of the price of the commodity

supply increases, quantity supplied

also increases, ceteris paribus.
• There is a positive relationship
between price and quantity
supplied.
Supply
Schedule
Supply schedule shows the tabular
representation of the relationship
between the quantity of a good
supplied and its price
Supply
Curve
Supply Curve is a graph of supply
showing the upward- sloping relationship
between price and quantity supplied. It is
upward sloping which implies a positive
relationship between quantity supplied
and price.
Difference between Individual Supply
and Market Supply

Individual Supply Market Supply

➢The supply of a good ➢Market supply is the
or service can be sum of all the quantities
defined for an of a good or service
individual firm, or for a supplied per period by
group of firms that all the firms selling in
make up a market or the market for that good
an industry. or service
 CHANGES OCCUR BROUGHT IN
SUPPLY CURVE BY PRICE FACTOR
Movement along the Supply Curve
➢This is only occur when the price of the subjected
commodity changes.
➢The movement in supply curve can be of two types –
extension and contraction. Extension in a supply curve is
caused when there is an increase in the price or quantity
supplied of the commodity while contraction is caused due
to a decrease in the price or quantity supplied of the
commodity.
➢
 CHANGES OCCUR IN SUPPLY CURVE
BROUGHT BY NON-PRICE FACTOR
Shifting of the Supply Curve
Shifting of the supply curve occurs when the non-price factor changed. The following are
✓ the non-price factor that affects the supply curve. When supply shifts to the right, supply
increases.
1. Productivity (Improvements in machines and production processes of a good or
service)
2. Inputs (Change in the price of inputs required to produce the good or service.)
3. Government Actions (Subsidies, Taxes and Regulations)
4. Technology (Improvements in machines and production processes of a good or service)
5. Outputs ( Price changes in other products produced by the firm)
6. Expectations (outlook of future prices and profits)
7. Size of Industry (Number of firms in the industry)
 factors that affect the
demand curve
There are two changes that can occur on Demand Curve; Movement along the Demand Curve, and Shifting of the
Demand Curve
Difference between Movement and
shifting
Movement along the Shifting of the Demand Curve
Demand Curve
➢ When there is a change in the
➢ When there is a change in the quantity demanded of a particular
quantity demanded of a particular commodity, at each possible price,
commodity, because of a change due to a change in one or more
other factors, the demand curve
in price, with other factors
shifts. The important aspect to
remaining constant, there is a remember is that other factors like
movement of the quantity the consumer’s income and tastes
demanded along the same curve. along with the prices of other goods,
etc., which were expected to remain
➢ Changes occur by Price Factor constant, changed.
➢ Changes occur by Non-Price Factor
 Example of movement along
the demand curve
The price of good X rises from Php3 to Php5. The changes occur base on the situation is that the demand curve remains its position but the point will
move along the curve as shown in Figure 2.2 panel A. The point moves from point A to point B. When price of commodity X increases, quantity demanded
will decrease. On the other hand, as the price of the commodity X decreases from Php5 to Php3, the Quantity demanded for the product X increases from
10 to 15. This is shown in figure 2.2 panel B.
 CHANGES OCCUR IN Demand CURVE
BROUGHT BY NON-PRICE FACTOR
Shifting of the demand curve occurs when the non-price
factor changed.
The following are the non-price factor that affects the
demand curve.
1. Price of related commodity
2. Outlook
3. Income
4. Number of consumer
5. Taste and Preferences
 CHANGES OCCUR IN Demand CURVE
BROUGHT BY NON-PRICE FACTOR
1. PRICE OF RELATED COMMODITY - is one of non-price factors that affect the demand curve is the price of
related commodity which includes substitute goods and complementary goods
substitute goods complementary goods
➢are those commodities in ➢are goods in which you consume
which they perform the same it hand on hand, or consume it
function and can satisfy the on tandem.
same needs and wants. ➢Examples of these are coffee and
➢Examples of these are ballpen sugar, socks and shoes, belt and
and pencil, sugar and honey, pants, hospital services and
coffee and tea, and omnibus doctor’s services, and DVD and DVD
services of jeep services player.
 CHANGES OCCUR IN Demand CURVE
BROUGHT BY NON-PRICE FACTOR
2. INCOME is the amount of money that the individual or household receives from providing the
factors of production. It is divided into two; the disposable income and the non-disposable
income.
disposable income non-disposable
income.
➢part of income use by individual ➢part of income that is not use by
to purchase the goods and household or individual for their
services the individual or consumption. This is the part of
household needed. income that is being saved for
➢It is the one considered most by future purposes.
the economist whether there will ➢Sometimes, it became an
be changes in demand curve or investment of household or
not. individual in the future.
 CHANGES OCCUR IN Demand CURVE
BROUGHT BY NON-PRICE FACTOR
3. OUTLOOK OR CONSUMER’S EXPECTATION. If people expect that the price of good to increase, they will want to
buy it before the price increases. Conversely, if the people expect the price decline, they will purchase less and wait
for the decline.
4. NUMBER OF CONSUMER OR CONSUMER’S POPULATION. Demand is the relationship between price and quantity
demanded by all consumers in the market. If the number of consumers increases, then demand will also increase.
The demand curve will shift to the right.
5. TASTE AND PREFERENCE OF CONSUMER is the behavior of consumer which is affected by weather, perception,
information, occasion, what is in and others.
GROUP 2

THANK
Members:
YOU! Bacay, Mariel C.
Bool, Cheska Daphnie M.
Closa, Angelo M.
Lacbao, Patricia Reign E.
Macasinag, Lea D.
Maniebo, Lorena P.