6 Manecon Activity 4 Demand AND Supply Shifters PDF

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Demand and supply shifters...

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DEMAND AND SUPPLY SHIFTERS The demand shifters pertain to the changes of the non price determinants of the demand which affects the demand curve from shifting leftward or rightward. There are several factors aside from price which makes the demand curve shifts, such as the income of the consumers, price of related goods, population, taste and preference and price expectations. Under the price expectations, when people expect the prices of goods, especially basic commodities like rice, soap and sugar to increase in the future, people will buy more of these goods, therefore, there is an increase in the demand with the basic commodities which makes the demand shift to the right. On the other hand, supply shifters also pertain to the changes of the non price determinants that affect the supply curve from shifting leftward or rightward such as the technology, cost of production, number of sellers, taxes and subsidies and producers’ expectations. Under technology which refers to the methods of production, it can fasten the production process which can result in producing more goods such as in a factory of sardines, through machines, they can produce thousands of sardines everyday which makes the supply increases and can result to a rightward shift in the supply curve, however if there is a technical error with the machines used, there will be a problem with the production process which decreases the products or supplies produce in a day which can cause a leftward shift with the supply curve.

CONSUMER SURPLUS AND PRODUCERS SURPLUS Consumer Surplus are the benefits gained from purchasing a product without the need of paying for it. An example of this is when you purchase a bearband package, whereas there will be a corresponding voucher through Gcash, in that way, you will gain something without even paying for it. The importance of the consumer surplus is for the managers to determine the amount of extra money consumers would be willing to pay in a certain amount of a product. Moreover, the Producer Surplus are also benefits gained by the producers from their supplier whereas they are gaining profit without even starting the business. To illustrate, let's say you have a fast-food business

which sells burgers, whereas your ingredients are patties, breads, ketchup and many more. Let's assume that you bought a 100 pieces of patties for P600, however, since you bought a lot of patties, the supplier gave you a discount of 10%. As a result, you will get a discount of 60 pesos wherein even though you are not yet selling hamburgers, you already have a profit. It is the excess amount received from purchasing goods such as raw materials in producing a certain product.

DEMAND FUNCTION VS. SUPPLY FUNCTION The Demand function mainly focuses on the equation of the quantity demanded, which means the customers are willing to buy and have a capacity to purchase a certain goods or services with the given price and other factors. It can be seen that the graph of a demand function is decreasing. On the other hand, the supply function entails what the producers or suppliers are willing to produce with a given price and other non price determinants. It can be used to demonstrate a supply curve.

CONTRACTION AND EXPANSION PRICE CEILING AND PRICE FLOOR It is simply the maximum price a seller can set to his or her product wherein they cannot go beyond the given maximum price with the compliance of the government . Let’s say the price of chicken extends up to P180, in that way, the sellers of chicken cannot sell beyond P180 per kilo of chicken. On the other hand, the price floor is the minimum price wherein they cannot go below with the said minimum amount by the government such as the wages of employees, wherein they have a minimum wage of 400 in which the business cannot compensate their employees below P400.

TABLE OF EXPLICIT AND IMPLICIT COST TABLE OF ACCOUNTING AND ECONOMIC PROFIT Explicit

Implicit

Equipment : 100,000 ÷ 12 = 8,333.33

Total Explicit Cost : P8,333.33

Accounting Profit

Rentals : Cost of Labour: (450 x 2(no. of workers) = 900 900 x 30 (no. of days) = 27,000 Interest Foregone on Self owned Funds (200,000 x .02 (interest rate = 4,000 4,000 ÷ 12 (no. of months) = 333.33 Total Implicit Cost :

30,000 8,333.33

Revenue:. Less: Economic Cost (Explicit + Implicit) 8,333 + 34,333 = 42,666.67

Total Accounting Profit:

P 21,666.67

Total Economic Profit :

FV _____ (1 + i)n

FV = PV (1+ r ) n

333.33

P 34, 333. 33

Economic Profit

Revenue: Less: Explicit Cost:

PV =

7,000 27,000

30,000 42,666.66

- P12,666.66...