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


D_f = Demand Function = D = F(P) (The line/curve in the graph)

• P_f = Price Function
• P_f ↑ D_f↓ - 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)