Objectives for Chapter 3

At the end of Chapter 3, you will be able to answer the

following:
1. Define the following terms:
a. Demand, Demand Schedule, Demand Curve
and the Law of Demand;
b. Supply, Supply Schedule, Supply Curve and the
Law of Supply;
c. Law of Supply and Demand
2. Identify the non-price determinants of demand and
supply.

Chapter 3
Demand and Supply
Give me that which I want, and you shall have this
which you want
-Adam Smith,
The Wealth of Nations
(1776)

This chapter deals with the central concept in the study of

Economics, the forces of demand and supply. These two
key concepts dictate most activities in the economy. The
understanding of the forces of demand and supply may
answer and explain most economic phenomenon. When
typhoon hits Baguio, the price of cabbage in the market
rises throughout many provinces. When weather turns
warm during the summer, the price of hotel rooms in
Boracay plummets. When a war breaks out in the Middle
East, the price of gasoline in the entire Philippines rises,
and the price of a used Toyota falls. What do these events
have in common? They all show the workings of the forces
of supply and demand.
Remember the circular flow diagram showing the role of

the households and the business firms? They both

represent demand and supply. Their role varies dependent
on the type of market; we may talk about the market for
the factors of production, or the market for goods and
services. The latter is most obvious for a layman.
Supply and demand are the forces that make market
economies work. It is these two forces that answer the 3
basic economic questions of what and how to produce
goods and services, and for whom to produce in a free
market economy.
The terms supply and demand refer to the behavior of
people as they interact with one another in competitive
markets. Before discussing how buyers and sellers behave,
lets first consider more fully what we mean by the terms
market.
Market in Economic Perspective
The term market in economics is understood differently
than its use in other fields. In business and advertising,
market refers to the target consumers of a certain product.
In other fields, market refers to venue or a place where
buyers and sellers meet.
In economics, a market is a group of buyers and sellers of a
particular good or service, or even factor of production.
The buyers as a group determine the demand for the
product, and the sellers as a group determine the supply of
the product. There are several markets that may exist in an
economy. There is a market for educational goods and
services, market for health resources, the food industry, for
entertainment, clothing, etc.
In Chapter 7 we will have a more detailed discussion of
market and market structures, for now let us assume a
perfectly competitive market wherein no one person can
influence the market demand and the market supply.

The Law of Demand

Consider first the Circular Flow Diagram, specifically the

upper loop of the diagram, also known as the market for

goods and services. Let us begin our study of markets by
examining the behavior of buyers. To focus our thinking,
lets keep in mind a particular good- ice cream.
The Demand Curve
The quantity demanded refers to the various quantities of
goods or services that buyers are willing and able to
purchase at various prices at a given time and place. There
are lots of things that can influence our behavior as
consumers, but there is one factor which effect is evident,
the price of the good. Assume that you are a consumer of
ice cream. You are let us say a regular buyer of ice cream
in a shop. A cone sells for 15.00. You buy a given number
- say 7 cones in a week. Next week, there is a promo - the
price is 10.00 a cone. You buy 10 ice cream cones in a
week! The following week, the price has risen to 30.00
per cone. This is too expensive, so you decided not to buy
any. Because of the very high price you are either not
willing or not able to buy any ice cream cone.
This is our regular tendency as consumers. We buy more of
a good/service at lower prices, and buy less at higher
prices. Economists call this the Law of Demand:
as the price of the product rises (falls), the quantity
demanded of that product falls (rises).
While one can perhaps think of an exception, they are so
few that we can assume safely that the statement is true in
most cases. One can also think of certain individuals who
prefers to buy products that are more expensive, let say a
Louis Vuitton bag or a Pablo Picasso painting. These are
just few exceptions to the law of demand, which we call as
Veblen Goods.
As it was given emphasis in Thornstein Veblens book The
Theory of the Leisure Class (1899), he called this type of
behavior among the elites as conspicuous consumption.
Conspicuous consumption is the purchase or acquiring
of luxury goods and services to publicly display economic
power- either buyers income or the buyers accumulated
wealth. This states that those who belong to the leisure
class sometimes does not follow the law of demand so that

they may distinguish themselves

thus maintaining their status
conspicuous consumption can also
who do not belong to the leisure
demonstration effect.

from the commoners,

as elite. However,
be practiced by those
class as result of the

Demonstration effect is the sociological phenomenon

wherein a person based their consumption on what they
see from people whom they consider as authority or those
belonging to the upper class.
Anyway lets consider again the usual tendency among
regular consumers as shown by the law of demand.
The demand and the quantity demanded can be illustrated
in two (2) ways: the tabular form and the graphical form.
Consider the Table 1, which shows in a tabular form Mang
Pandoys demand schedule for ice cone.
A demand schedule shows
the various quantities of
Table 1. Mang Pandoy's
Demand Schedule
commodities which a buyer
Quantit
is willing and able to
Price of
y of
purchase at a given price,
Ice
Cones
time and place. This table is
Cream
Deman
a demand schedule, a table
Point
Cone
ded
that shows the relationship
A
For Free
12
between the price of a good
B
10.00
10
and the quantity demanded,
C
20.00
8
holding constant everything
D
30.00
6
else that influences how
E
40.00
4
much consumers of the
F
50.00
2
good want to buy. As
provided in the table, Mang
Pandoy consumes less and less of the good as price
increases.
The graph in
Figure 1 uses
the data from
Table 1. The
graph shows
the
inverse
relationship
between
quantity
demanded

and price, thus creating a downward-sloping curve. The

downward-sloping line relating price and quantity
demanded is called the demand curve.
Explaining the Downward-Sloping Demand Curve
There are two (2) generally accepted explanations for the
inverse relationship between quantity demanded and
price: these are the substitution effect and the income
effect.
Substitution Effect- this is the tendency of consumers to
look for possible substitutes or alternative for a good or
service whenever there is an increase in its price. For
example, the price of Jollibee products increase, some
costumers may decide to look for other venues to have
their lunch. They probably decide to eat at McDonalds or
at a nearby carinderia, thus decreasing the costumers
willingness to eat at Jollibee.
Income Effect- this is the effect of the increase in price in
the purchasing power of the buyers. Income is the source
of the ability of the buyers to pay for goods and services
they consume. For example, Mang Pandoy has 100.00
available income to spend on rice, and the price of rice is
at 20.00 per kilo, then Mang Pandoy has the ability to buy
5 kilos of rice. But if the price increase to 25.00 per kilo,
then Mang Pandoy cannot anymore afford to buy 5 kilos,
thus he will only buy 4 kilos. Mang Pandoys ability to buy
rice decrease because of the income effect brought about
by the increase in price.
Non-Price Determinants of Demand
Because the market demand holds the assumption of
ceteris paribus, which means holding other things equal
or constant, it need
not be stable all the Figure 2. Shifts in the Demand
time, in the real Curve
world
wherein
relatively, nothing
is ever constant. If
something happens
to alter the quantity
demanded at any

given price, the demand curve also shifts. For example,

suppose the recent 2015 Bar Examination results was
released and the Supreme Court announced that the 8 out
of 10 topnotchers came from the University of Santo
Tomas. At any given price, students who are interested to
take up law enroll at UST instead of other law schools and
the demand curve for UST Faculty of Law as represented by
their student enrollment would shift to the right.
Figure 2 illustrates shifts in demand. Any change that
increase the quantity demanded at every price, such as
our hypothetical example on the favorable bar examination
results for UST, shifts the demand curve to the right and is
called an increase in demand. Any change that reduces the
quantity demanded at every price shifts the demand curve
to the left and is called a decrease in demand. There are
many factors that may be considered as non-price
determinants of demand, but we would focus only on the 5
common factors, namely: (1) Income, (2) Prices of related
goods, (3) Taste and preference, (4) Rational expectations,
and (5) Population.
Income
Income is defined as the amount of wealth that flows
towards an individual or any economic entity for that
matter. Income is also assumed as the basis or source of
ones purchasing power. It is said to be the key non-price
determinant of demand. They are positively related,
meaning, the an increase in income, assuming ceteris
paribus, will lead for our demand curve to shift to the right
(outward), and a decrease in income will lead for the
demand curve to shift to the left (inward).
What would happen to Mang Pandoys demand for most
goods if he lost his job? Probably it will fall. Remember that
income is the source of purchasing power, so a lower
income means that one have less to spend in total, so
Mang Pandoy would have less on some- and probably most
goods. If the demand for a good falls when income falls, it
is called a normal good.
However, not all goods are normal goods. There are certain
goods and services which economists call as inferior goods.
This would be for those goods which demand reacts
inversely to increase in income. An example of an inferior

good might be jeepney rides and canned sardines. As Mang

Pandoys income falls, he is less likely to buy a car or take
a cab, and eat along restaurants, and more likely to take a
jeepney ride and eat canned sardines.
Prices of Related Goods
There are two types of related goods, substitutable
goods and complementary goods. They are usually
paired goods, with a main good in consumption, and a
substitute, or a complement.
Suppose the prices of Jollibee products fall. The law of
demand says that consumers will tend to buy more from
Jollibee, while at the same time eat less at those other
alternatives. Because Jollibee and MacDonalds are both
fast food chains, they satisfy similar desires. When the
price of one good reduces the demand for another good
that are used in place of each other, such as hotdogs and
hamburgers, Samsung and iPhone, jeepney rides and taxi
rides.
Now suppose the price of butter falls. According to the law
of demand, you will buy more butter. Yet in this case, you
will buy more bread as well, because butter and bread are
often used together. When a fall in the price of one good
raises the demand of another good, the two goods are
called complements. Complements are often pairs of goods
that are used together, such as gasoline and automobiles,
computers and software, bread and butter.

Case Study: Ways to Reduce the Quantity of Smoking

Demanded
Public Policy makers often want to reduce the amount that
people smoke. There are two ways that policy can attempt to
achieve this goal.
One way to reduce smoking is to shift the demand curve for
cigarettes and other tobacco products. Public service
announcements, mandatory health warnings on cigarette
packages, and the prohibition of cigarette advertising on
television are all policies aimed at reducing the quantity of
cigarettes demanded at any given price.
Alternatively, policy makers can try to raise the price of
cigarettes. If the government taxes the manufacture of
cigarettes, for example, just like the sin taxes that were
formally implemented in the Philippines on January 2013,
cigarette companies pass much of this tax on to consumers in

Taste and Preferences

Another non-price determinant of your demand is tastes
and preferences. If you like ice cream, you would buy more
demand of it. Taste and preference is very subjective,
because they are based on historical and psychological
forces, among many others thus they are very difficult to
precisely predict and fully understand.
One factor, among many, is the demonstration effect. The
Demonstration Effect suggests that ones taste and
preference is usually based on what he/she sees from other
people, especially those whom they consider as an
authority, whom one considers as their reference group.
This phenomenon is more closely studied in Psychology,
Sociology, and of course in the field of Marketing.
Rational Expectations,
Price Expectations and other Speculations
Your expectations about the future, may it be a change in
your income, a change on the price of certain goods, it
may affect your demand for a good or service today. For
example, if you expect an increase in the price of lets say
gasoline by the end of the week, probably you would
increase your demand for gasoline days before the price

actually increase. As another example, if you expect the

price of gasoline to fall tomorrow, you may be less willing
to buy gasoline at todays price, thus withholding or
decreasing your demand for the product today.
Population or the Size of the Market
Population refers to the size of the market or the number of
buyers in a market. Market demand depends on the
number of these buyers for a good or service. An increase
in the population would most likely lead to an increase in
demand for certain goods, especially basic commodities.
So we can make the assumption that population is
positively related with the market demand. The bigger the
population is, it will cause the demand curve to shift
further to the right (outward).

Supply
Consider again the Circular Flow Diagram, the upper loop
of the diagram, also known as the market for goods and
services. Let us begin our study of markets by examining
the behavior of sellers. Again, lets keep in mind a
particular good- still, let us use ice cream.
The Supply curve
The quantity supplied of any good or service is the amount
that sellers are willing and able to sell at a given price,
time and place.
There are many factors that determine the quantity
supplied, but once again, price plays a special role in our
analysis. Price is the primary determinant of demand as
well as the supply. When the price of ice cream is high,
selling ice cream is profitable, and so the quantity supplied
is large. Sellers have higher incentive to produce more of
the good. By contrast, when the price of ice cream is low,
the business is less profitable because of the lower profit
margin, and so sellers produce less ice cream.
This phenomenon is known in economics as the Law of
Supply.
We can summariza it with the following
statement:

as the price of the product rises (falls), the quantity

demanded of that product rises (falls) at the same time.
Table 2 on the left shows
the quantity of ice-cream
Table 2. Mang Pandoy's Supply
cones supplied each month
Schedule
Quantit
by Mang Pandoy based on
Price of
y of
the, assuming that now, in
Ice
Cones
this case, he is an ice
Cream
Deman
cream vendor, at various
Point
Cone
ded
prices of ice cream. Notice
A
00.00
0
how the quantity supplied
B
10.00
2
of Mang Pandoy reacts to
C
20.00
4
changes in price. As the
D
30.00
6
price rises, he supplies a
E
40.00
8
greater
and
greater
quantity. This is the supply
F
50.00
10
schedule, a table that
shows the relationship between the price of a good and the
quantity supplied, holding constant everything else that
influences how much the producers of the good want to
sell.
The
graph
in
Figure 3 uses the
numbers from the
table to illustrate
the law of supply.
Again we use the
x-axis to illustrate
quantity and the
y-axis to illustrate
price
of
the
commodity. Notice
the
upward
sloping curve of
the supply curve
compared to the downward sloping curve of the demand
curve illustrated earlier. This positively sloped curve shows
the positive relationship between price and quantity
supplied.
Non-Price Determinants of Supply

Similar to our discussion on the demand earlier this

chapter, it can be observed that there are certain goods
and services which the quantity supplied changes even the
price of the commodity is constant. There are certain
goods and services as well in market today that has a
continuously increasing price, however, supply of the
producers remain the same or even decreasing. Again this
is explained by the non-price determinants of supply.
There are many possible non-price determinants of supply,
but we will discuss six common factors, name: (1) Cost of
production,
(2)
Technological
Advancement,
(3)
Expectations, (4) Physical availability of the good, (5)
Market structure, (6) taxes and subsidies.
The Costs of Production
Figure 4. Shifts in the Supply Curve

The cost of
production is
the costs that
are
incurred
as
one
produces
goods
or
services. We
can also refer
to them as
input
prices.
These are the
cost of raw
materials,
wage

expenses, over-head costs, even taxes.

To produce their output of ice cream, sellers use various
inputs: sugar, cream, flavoring, ice-cream machines, the
buildings in which the ice cream is made, and the labor of
workers to mix the ingredients and operate the machines.
When the price of one or more of these inputs rises,
producing ice cream is less profitable, and firms supply less
ice cream. If input prices rise substantially, a firm might
shut down and supply no ice cream at all. Thus, the supply
of a good is negatively related to the price of the inputs
used to make the good. Meaning as the costs of production
rises, it leads to a decrease in the level of supply, thus

shifting the supply curve to the left.

Technological advancement
Technology affects the level of supply. As technology
improves, so as the process of production, thus it may lead
to a faster production and a more efficient use of the inputs
for production.
The technology for turning inputs into ice cream is another
determinant of supply. The invention of the mechanized
ice-cream machine, for example, reduced the amount of
labor necessary to make ice cream. By reducing firms
costs, the advance in technology raised the supply for ice
cream.
Expectations
Expectations in supply are similar to expectations in
demand, but have the opposite effect. When a good is
expected to increase in price in the future, suppliers will
wait to supply more of the good until the future when
prices are higher. They will supply less in the current time.
This will maximize profits on the good and fuel the
business. When goods are expected to increase in price,
the supply of the good in the present will decrease.
Physical Availability of Resources
When more resources are present, more goods can be
produced and vice versa. For example, suppose a calamity
destroys nearly every farm that is the source of milk and
sugar that are used in producing ice cream. The scarce
amount of these raw materials will ultimately lead to an
increase in production cost and decrease the level of
supply. When the physical availability of resources
increase, the supply of the good they produce increases as
well.
Market Structure
In addition to the preceding factors, which influence the
behavior of individual sellers, market supply depends on
the number of sellers which is characterized by the market
structure.

If Mang Pandoy is to retire from ice-cream business, the

supply in the market would fall, because there will be fewer
entities that will produce such a good. The number of
sellers is positively related with the level of supply. The
more sellers there are, the more is the supply curve be
expected to shift to the right (outward).
Taxes and Subsidies
Taxes are those duties paid by persons, natural or juridical,
to the government as they are exercising certain rights and
privileges such as business tax, income tax, etc. Taxes are
considered as a cost in producing goods and services;
therefore, its effect on the level of supply is similar to that
of the costs of production. Taxes can be encouraging or
discouraging to households and firms to produce. For
example, the government increased the tax on the
production of footwear, it may be possible that because of
the increased in tax, some footwear manufacturers may
decide to shift their production to other goods which tax is
not that high.
Subsidies, on the other hand, are those financial aid
provided by the government to specific sectors of the
economy and the society. The government usually
subsidizes basic services such as education, health, and
electricity, among some others. Consider a situation where
in the government will decrease its subsidy on education. If
they will limit the budget allocated to state universities,
what do you think will be its effect on the level of supply of
public education services in the state? Assuming ceteris
paribus, it will decrease, shifting the supply curve of
education to shift to the left.

The Interaction between Supply and Demand

We now are familiar with the law of demand, the law of
supply, and even the non-price determinants of both
demand and supply. Having Analyzed supply and demand
separately, we now combine them to see how they
determine the price and quantity of a good sold in a
market.
Market Equilibrium

Figure 5 shows the market supply curve and market

demand curve together. Notice that there is one point at
which the supply and demand curves intersects. This point
is called the market equilibrium; some simply calls this
as the point of equilibrium. The price at this intersection, if
we trace it towards the y-axis is called as the equilibrium
price, and the quantity, as we trace it to the x-axis, is
called the equilibrium quantity.
Figure 5. Equilibrium of
Supply and Demand

The word equilibrium, is defined generally as a situation in

which various forces are in balance- and this also describes
a markets equilibrium. At the equilibrium price, the
quantity that the buyers are willing and able to buy exactly
balances the quantity the sellers are willing and able to
sell. The equilibrium price is sometimes called as the
market-clearing price because, at this price, everyone in
the market has been satisfied: Buyers have bought all they
want to buy, and
Figure 6. Markets not in Equilibrium:
sellers have sold,
Surplus and Shortage
all they want to
sell.
The actions of
buyers
and
sellers naturally
move
towards
the equilibrium of
supply
and
demand. To see

why, consider what happens when the market price is not

equal to the equilibrium price. Consider Figure 6.
Assume that the market price is above the equilibrium
price, you would notice that the quantity supplied is
greater than the quantity demanded. Thus there is a
surplus of the good: Suppliers are unable to sell all they
want to sell at the going price. A surplus is sometimes
called a situation of excess supply. How would the seller
respond to this kind of situation? They respond to the
surplus by cutting their prices. Falling prices, in turn,
increase the quantity demanded and decrease the quantity
supplied. Prices continue to fall until the market reaches
the equilibrium, at a point where in the quantity demanded
is equal with the quantity supplied.
Consider on the other hand that the market price is below
the equilibrium price, in this case, the quantity of the good
demanded is greater the quantity supplied. There is a
shortage of the good: Consumers are not willing or able to
buy at the going price. A shortage is sometimes called a
situation of excess demand due to limited available supply.
With too many buyers chasing too few goods, sellers can
respond to the shortage by raising their prices without
losing sales. It may even be possible that the buyers
themselves will bid up the price just to avail of the limited
available goods. As the price rises, the quantity demand
falls, the quantity supplied rises, and the market once
again moves toward the equilibrium.
This phenomenon is called in economics as the Law od
Demand and Supply. This law can summarize as:
When the quantity demanded is greater than the quantity
supplied, price is expected to rise, when the quantity
demanded is less than the quantity supplied, price is
expected to rise, and when the quantity demanded is
equal with the quantity supplied, price is expected to
remain constant.
Thus, in a Laizzes faire economy the activities of the many
buyers and sellers automatically push the market price
toward the equilibrium price. We achieve the market
equilibrium. In most free markets, surpluses and shortages
are only temporary because prices eventually move toward
their equilibrium levels.

Change in the Equilibrium Price

Three Steps for Analyzing Changes in Equilibrium
1. Decide whether the event shifts the supply or the
demand curve (or perhaps both).
2. Decide on which direction the curve shifts.
3. Use the supply-and-demand diagram to see how the
shift changes the equilibrium price and quantity.
Case Study: Changes in
Equilibrium

Figure 7. How an Increase in Supply

Affects the Equilibrium

Case 1: Assume that we

begin with a market for
homes
in
equilibrium.
Then, something changes.
Let us assume that income
rises. How do we analyze
this case?
Answer: Does income affect
demand or supply?
The
answer, as we saw in the
last chapter, is demand.
Will there be a shift or
movement along demand?
The
answer
is
shift,
because the change is
caused by something other
than the price. Is the shift
right or left? The demand
will increase, which is a
shift to the right.

Figure 8. How a Decrease in Demand

Affects the Equilibrium

Case 2: Again, assume that there is a market for homes

that begins in equilibrium. In this case, the change that
occurs is an increase in the price of wood. How do we
analyze this case?
Answer: Since wood is used to build homes, this is an
increase in a cost of production. Do costs of production
affect the demand or the supply? The answer is supply.
Will there be a shift in or movement along the supply? The
answer is a shift, since the cause is something other than

the price of the product. Will the shift be right or left?

Since costs are increasing, supply will decrease --- a shift to
the left.
Case 3: Again, assume that the market for homes begins
in equilibrium. In this case, the change that occurs is that
buyers and sellers both expect the price to rise soon. How
do we analyze this case?
Answer: In this case, both buyers and sellers are affected.
Since the case involves expectations, both the demand
curve and the supply curve will shift. The demand curve
shifts to the right because buyers will want to buy more
homes now. The supply curve shifts to the left because
sellers will not want to sell their homes until the price they
will receive rises. As shown in the graph, if the demand
curve shifts to the right and the supply curve shifts to the
left, we know without doubt that the price of homes will
rise. But we cannot say definitively what will happen to
the quantity of homes. By itself, an increase in the
demand for homes will make the quantity of homes rise.
By itself, a decrease in the supply of homes will make the
quantity of homes fall. If both happen simultaneously, we
cannot know what will happen to the quantity of homes
unless we know which of the two shifts is greater.

Summary

The behaviors of buyers and sellers naturally drive

the marketusetoward
theirof equilibrium.
When the
Economists
the model
supply and demand
to
market
price
is
above
the
equilibrium,
there is a
analyze competitive markets. In a competitive
surplus there
of theare
good,
which
causes
market
price
market,
many
buyers
and the
sellers,
each
of
to
fall.
When
the
market
price
is
below
the
whom has little or no influence in the market price.
equilibrium price, there is a shortage, which causes
the demand
market price
to rise.
The
curve
shows how the quantity of a
good demanded depends on the price. According to
the law of demand, as the price of a good falls, the
quantity demanded rises. Therefore, the demand
curve sloped downward.

In addition to price, other determinants of how

much consumers want to buy includes income, the
prices of substitutes and complements, tastes and
preferences, rational expectations, and the number
of buyers. If one of these factors changes, the
demand curve shifts.

The supply curve shows how the quantity supplied

depends on the price. According to the law of
supply, as the price of the good rises, the quantity
supplied rises. Therefore, the supply curve slopes
upward.

In addition to price, other determinants of how

much sellers or producers want to sell include input
prices or the costs of production, technology,
expectations, taxes and subsidies, and the number
of sellers. If one of these factors changes, the
supply curve shifts.

The intersection of the supply and demand curves

Questions for Review and Application

1. What are the supply schedule and supply curve and
how are they related? Why does the supply curve
slope upward?

2. Describe the role of prices in market economies.

3. Mang Pandoys income declines, and as a result, he
buys more sardines. Is sardines an inferior or a
normal good? What happens to Mang Pandoys
demand curve for sardines?
4. Beer and sisig are complements because they are
often enjoyed together. When the price of beer rises,
what happens to the supply, demand, quantity
supplied, quantity demanded, and the price in the
market for sisig?
5. Does a change in consumers tastes leads to a
movement along the demand curve or a shift in the
demand curve? Does a change in the price lead to a
movement along the demand curve or a shift in the
demand curve?
6. Define the equilibrium of a market. Describe the
forces that move a market toward its equilibrium.

Quiz 1. Market Forces of Demand and Supply

Name:
_______________________________
_________________
Section:
____________
Date:
_________
_________________

Score:
Professor:

Direction: Multiple Choice: Choose the best answer.

______1. If the price of popcorn fell and, as a result, the
demand for powdered cheese fell, we could conclude that
popcorn and powdered cheese are:
A. Normal goods
B. Complements

C. substitutes
D. independent

______2. Which of the following would cause the demand

for gasoline to shift to the right?
A. an increase in the price of automobiles by
100,000
B. the price of gasoline falls by 1 per liter
C. buyers buy SUVs that are larger and obtain
fewer miles per liter
D. for health reasons, people desire to bicycle
more
E. all of the above
______3. To find the quantity people will buy, we move
along the demand line if what changes?
A. price of the product
B. price of a substitute
complement

C. income
D. price of a

______4. If peoples tastes change so that they like the

product better, the demand for the product will:
A. shift to the right
constant
B. shift to the left

C. remain
D. undetermined

______5. If buyers expect the price of a product to rise

greatly very soon, the demand for that product will:
A. shift to the right
constant
B. shift to the left

C. remain
D. undetermined

______6. The law of supply states that, other things being

unchanged:
A.
B.
C.
D.

as
as
as
as

the
the
the
the

price rises, the quantity supplied rises

price rises, the quantity supplied falls
supply rises, the price falls
demand rises, the supply falls

______7. Which of the ff. would cause the supply curve of

rice to shift to the right?

A. an increase in wages paid to agricultural

workers
B. technological changes which lower the costs of
production
C. a decrease in the number of wheat growers
D. an increase in the price of corn
______8. We move along the supply curve if what
changes?
A. the price of the product
C. the cost of
production
B. the number of sellers D. all of the above
______9. Which of the following is not a determinant of
demand:
A. income
B. expectations

C. tastes
D. technology

______10. The following are determinants of supply EXCEPT:

A. expectations
B. input prices

C. technology
D. income

Quiz 2. Market Forces of Demand and Supply

Name:
_______________________________
_________________
Section:
____________
Date:
_________

Score:
Professor:

_________________
Direction: Multiple Choice: Choose the best answer.
1. It comes at that price and quantity where the forces
of supply and demand are in balance.
A. Market Equilibrium
C. Market forces
B. Ceteris paribus
D.
Market
efficiency.
2. A situation where in quantity supplied is greater that
quantity demanded.
A. Market equilibrium
C. Market efficiency
B. Surplus
D. Shortage
3. Which of the following statement will hold true
according to the law of demand and supply:
A. When demand is greater than supply price is
expected to increase.
B. When supply is greater than demand price is
expected to remain constant.
C. When supply is equal to demand, price is
expected to decrease.
D. When demand is less than supply price is
expected to increase.
For nos. 4-9. Refer to the following choices: (Please
consider the assumption of Ceteris Paribus).
A. Shift to the left
constant
B. Shift to the right
Undetermined

C. Remain
D.

4. Increase in the level of Technology in the production

of analgesic drugs. What is expected to be the
movement of the supply curve of the
abovementioned drug?
5. Decrease in aggregate household income. What is
expected to be the movement of the demand curve
of good X?
6. Inflation rate is the same as the increase in Income.
What is expected to the demand curve for good X?
7. Typhoon hit central Luzon affecting the production of
vegetables in Baguio. What is expected to be the
movement of the supply of agricultural products
coming from Baguio?

8. Birth rate is equivalent to the mortality rate, leading

to a constant population from 2014-2015. What is
expected to be the movement of the demand curve
within those years?
9. Subsidies that government provides for education
increase. What will be the movement of the supply
curve of educational services in the country?
For nos. 10-15. Refer to the following choices: (Please
consider the assumption of Ceteris Paribus).
A. Increase in price
remain constant
B. Decrease in price

C. Prices will
D. Undetermined

10.
Quantity
Supply is greater than the quantity demand.
11.
Quantity
supply is equal to the quantity demand.
12.
Change in
quantity supply is greater than the change in
quantity demand.
13.
Demand
curve shifted to the left while supply curve remained
constant.
14.
Supply
curve shifted to the right while demand curve
remained constant.
15.
Both supply
and demand curve where shifted.