Business Economics Notes: Business, Demand and Supply Analysis, Determinants of Demand and Supply (1.1)

1. Business ______ ( I missed this!)
                                     Fixed Cost 
2. Business has a cost < Variable Cost   (Other Costs: Sociable Cost, Opportunity Cost, Regrettable Cost by Tobin like wars)


3.  Business as a consequence - should be desirable


Principles: 


Demand and Supply Analysis


Df = Demand Function = D = F(P) (The line/curve in the graph)
    • Pf = Price Function
    • Pf ↑ Df↓ - D varies inversely with P, ceteris paribus (with other things the same)

    • Normally:
      • Price is in Y axis - independent 
      • Demand is in X axis - dependent in the variable Y

Other Determinants of Demand

1. Income - measure of ability to buy/purchasing power


  • Y ↑  D ↑
  • Y ↓  D ↓
2. Credit - augment purchasing power

3. Economic Conditions

  • Prosperity
    • ↑ Employmet Level
    • ↑ Business Profit
    • ↑ Income Levels
    • ↑ Demand
  • Depression
    • ↑ Unemployment Level
    • ↑ Business Losses
    • ↓ Income Level
    • ↓ Demand
4. Personal Characteristics of the Buyer
  • Age
  • Gender
  • Religion
  • Income Class (A, B, C, D, E) NOTE: here in the Philippines majority is C,D,E
5. Government Policy
  • Taxation of sin or vices (i.e. excise tax)
Supply Function - Function of the sellers/producer/firm/business enterprises
  • S varies directly with P, ceteris paribus

    • P↑ S↑
    • P↓ S↓


Other Determinants of Supply

1. Technology

  • T↑ S↑
  • T↓ S↓


2. Government Policy
  • Deregulation/Liberalization/Deomonopolization - S↑ 
  • Regulation - S↓
3. Economic Conditions


  • Prosperity - S↑
  • Depression - S↓
4. Taxes and Subsidies
  • Taxes - cost of doing business - S↓
  • Subsidies - assistance to business; consensual rate of interest on borrowed funds - S↑
Continue to Business Economics Notes: Equilibrium (1.2)