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ENGINEERING ECONOMICS - SHIFTED DEMAND /SUPPLY

ENGINEERING ECONOMICS AND FINANCIAL ACCOUNTING, SHIFTED TO DEMAND AND SUPPLY CURVE- FINAL YEAR CS/IT - SRI SAIRAM INSTITUTE OF TECHNOLOG, CHENNAI - DR.K.BARANIDHARAN

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ENGINEERING ECONOMICS - SHIFTED DEMAND /SUPPLY

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  1. Dr.K.Baranidharan Present by…

  2. Engineering Economics & Financial Accounting Ee&fa

  3. SHIFT IN DEMAND AND SUPPLY CURVES

  4. Supply Curve Supply curve, S Price A supply curve shows graphically how much of a good or service people are willing to sell at any given price. $2.00 1.75 As price rises, the quantity supplied rises. 1.50 1.25 1.00 0.75 0.50 0 7 9 11 13 15 17 Quantity

  5. An Increase in Supply S 2 Price of coffee beans (per pound) A shift of the supply curve is a change in the quantity supplied of a good at any given price. S 1 $2.00 A movement along the supply curve… 1.75 1.50 1.25 1.00 … is not the same thing as a shift of the supply curve 0.75 0.50 0 7 9 11 13 15 17 Quantity

  6. Movement Along the Supply Curve A movement along the supply curve is a change in the quantity supplied of a good that is the result of a change in that good’s price. Price S S 2 1 A movement along the supply curve… $2.00 1.75 1.50 B 1.25 A C 1.00 … is not the same thing as a shift of the supply curve 0.75 0.50 0 7 10 11.2 12 15 17 Quantity

  7. Shifts of the Supply Curve Any “increase in supply” means a rightward shift of the supply curve: at any given price, there is an increase in the quantity supplied. (S1 S2) Any “decrease in supply” means a leftward shift of the supply curve: at any given price, there is a decrease in the quantity supplied. (S1 S3) Price S S S 3 1 2 Increase in supply Decrease in supply Quantity

  8. SHIFT IN DEMAND AND SUPPLY CURVES • Change in any of the variables, other than price, that influence demand or supply will result in a shift in the demand curve or the supply curve or both.

  9. A rise in demand(shift in the curve to the right) • An increase in demand result in shortage of a commodity initially and existing equilibrium condition is distributed. • Unsatisfied buyers bid up the price and producers, lured by profitability, increase the supply. • A new equilibrium will be attained where more quantity will be exchanged at a higher price.

  10. A fall in demand (shift in the demand curve to the left) • A degrease in demand leads to decrease in the equilibrium price as well as the equilibrium quantity exchanged.

  11. A rise in supply (shift in the supply curve to the right) • An increase in supply results in a decrease in the equilibrium price and increase in the equilibrium quantity exchanged.

  12. Changes in supply can result from events like the following: Change in production costs. Improved technology that makes production more efficient. Industry growth and shrinkage

  13. (Economics) the economic condition in which there is neither excess demand nor excess supply in a market

  14. A fall in supply (shift in the supply curve to the left) • A decrease in supply result in an increase in the equilibrium price and decrease in the equilibrium quantity exchanged.

  15. Simultaneous changes in both supply and demand • There is decrease in the equilibrium price or an increase therein and/or a decrease in the equilibrium quantity or an increase therein depends on the extent of shift in the demand and supply curves.

  16. Simultaneous Shifts of Supply and Demand (a) One possible outcome: Price Rises, Quantity Rises Price of coffee Small decrease in supply S S 2 1 Two opposing forces determining the equilibrium quantity. The increase in demand dominates the decrease in supply. E 2 P 2 E 1 P 1 D 2 D 1 Large increase in demand Quantity of coffee Q Q 1 2

  17. Simultaneous Shifts of Supply and Demand (b) Another Possibility Outcome: Price Rises, Quantity Falls Price of coffee Large decrease in supply S 2 Two opposing forces determining the equilibrium quantity. S 1 E 2 P 2 E Small increase in demand 1 P 1 D 2 D 1 Q Q Quantity of coffee 2 1

  18. Supply, Demand and Equilibrium • Equilibrium in a competitive market: when the quantity demanded of a good equals the quantity supplied of that good. • The price at which this takes place is the equilibrium price (a.k.a. market-clearing price): • Every buyer finds a seller and vice versa. • The quantity of the good bought and sold at that price is the equilibrium quantity.

  19. Market Equilibrium Price Market equilibrium occurs at point E, where the supply curve and the demand curve intersect. Supply $2.00 1.75 1.50 1.25 Equilibrium price Equilibrium E 1.00 0.75 0.50 Demand 0 7 10 13 15 17 Quantity Equilibrium quantity

  20. Surplus Price There is a surplus of a good when the quantity supplied exceeds the quantity demanded. Surpluses occur when the price is above its equilibrium level. Supply $2.00 1.75 Surplus 1.50 1.25 E 1.00 0.75 0.50 Demand 0 7 8.1 10 11.2 13 15 17 Quantity Quantity demanded Quantity supplied

  21. Shortage Price There is a shortage of a good when the quantity demanded exceeds the quantity supplied. Shortages occur when the price is below its equilibrium level. Supply $2.00 1.75 1.50 1.25 E 1.00 0.75 Shortage 0.50 Demand 0 7 9.1 10 11.5 13 15 17 Quantity Quantity supplied Quantity demanded

  22. Dr.K.Baranidharan THANK YOU

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