101 George Avenue, Villa Angelina Subdivision, Angeles City
Social Studies 10
Kristine Mari P. Demapendan
Ms. Gimberly O. Sales
Production Linkage
Connection or relation between factors of production
The factors of production are resources that are the building
blocks of the economy. The first factor of production is land, but this includes any natural resource used to produce goods and services. This includes not just land, but anything that comes from the land. The second factor of production is labor. Labor is the effort that people contribute to the production of goods and services. The fourth factor of production is entrepreneurship. An entrepreneur is a person who combines the other factors of production - land, labor, and capital - to earn a profit. Concept of Demand What is Demand? Demand is an economic principle that describes a consumer's desire and willingness to pay a price for a specific good or service. How demand affects production and consumption Economists have a very precise definition of demand. For them demand is the relationship between the quantity of a good or service consumers will purchase and the price charged for that
good. More precisely and formally the Economics Glossary defines
demand as "the want or desire to possess a good or service with the necessary goods, services, or financial instruments necessary to make a legal transaction for those goods or services." Demand is not simply a quantity consumers wish to purchase such as '5 oranges' or '17 books', because demand represents the entire relationship between quantities desired of a good and all possible prices charged for that good. The specific quantity desired for a good at a given price is known as the quantity demanded. Typically a time period is also given when describing quantity demanded. When the price of an orange is 65 pesos the quantity demanded is 300 oranges a week. If the local Starbucks lowers their price of a tall coffee from P175 to P165, the quantity demanded will rise from 45 coffees an hour to 48 coffees an hour. Explanation of the law of demand The law of demand states that, if all other factors remain equal, the higher the price of a good, the less people will demand that good. In other words, the higher the price, the lower the quantity demanded. The amount of a good that buyers purchase at a higher price is less because as the price of a good goes up, so does the opportunity cost of buying that good. As a result, people will naturally avoid buying a product that will force them to forgo the consumption of something else they value more. Imagine that a special edition CD of your favorite band is released for P200. Because the record company's previous analysis showed that consumers will not demand CDs at a price higher than P200, only ten CDs were released because the opportunity cost is too high for suppliers to produce more. Elasticity Demand How price manipulates demand
Price elasticity of demand (PED) shows the relationship between
price and quantity demanded and provides a precise calculation of the effect of a change in price on quantity demanded. % change in quantity demanded % change in price We can use this equation to calculate the effect of price changes on quantity demanded, and on the revenue received by firms before and after any price change. For example, if the price of a daily newspaper increases from P1.00 to P1.20, and the daily sales fall from 500,000 to 250,000, the PED will be: -50% / 20% = (-) 2.5. The negative sign indicates that P and Q are inversely related, which we would expect for most price/demand relationships. This is significant because the newspaper supplier can calculate or estimate how revenue will be affected by the change in price. In this case, revenue at P1.00 is P500, 000 (P1 x 500,000) but falls to 300,000 after the price rise (P1.20 x 250,000).