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Demand and Supply

Demand and Supply. CHAPTER. 2. DEFINITION OF DEMAND. Demand is defined as the ability and willingness to buy specific quantities of goods in a given period of time at a particular price , ceteris paribus. P  Q DD . P  Q DD . LAW OF DEMAND.

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Demand and Supply

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  1. Demand and Supply CHAPTER 2

  2. DEFINITION OF DEMAND Demand is defined as the ability and willingness to buy specific quantitiesof goods in a given period of time at a particularprice, ceteris paribus.

  3. P  QDD P  QDD LAW OF DEMAND Law of demand states that the higher the price of a good, the lower the quantitydemanded for that good and lower the price, quantity demanded is higher, ceteris paribus. NEGATIVE RELATIONSHIP

  4. Demand Schedule Demand Curve Price Quantity 12 D 9.0 2 10 8 8.5 4 6 DD 8.0 6 4 2 7.5 8 D 0 7.0 10 2 4 6 8 10 DEMAND SCHEDULE AND DEMAND CURVE

  5. INDIVIDUAL AND MARKET DEMAND INDIVIDUAL DEMAND The relationship between the quantity of a good demanded by a single individualand its price. MARKET DEMAND The relationship between the total quantity of a good demanded by adding all the quantities demanded by all consumers in the market and its price.

  6. Price DD Quantity CHANGES IN DEMAND AND QUANTITY DEMANDED CHANGE IN QUANTITY DEMANDED CHANGE IN DEMAND DD1 Price DD0 Quantity • Movement along the demand curve • Price changes and other factors are constant • Upward movement: Decrease in quantity demanded(contraction) • Downward movement: Increase in quantity demanded (expansion) • Shift in the demand curve • Occurs when changes in other factors and price remains constant • Increase in demand (DD0  DD1 ) • Decrease in demand (DD1  DD0 )

  7. Consumers’ Income Tastes and Fashions Price of Related Goods Population or Number of Buyers Festive Seasons and Climate Expectation Advertisement THE DETERMINANTS OF DEMAND

  8. Exceptional demand is against the Law of Demand where as price increases, demand will also increase and vice versa GIFFEN GOODS STATUS SYMBOL GODS SPECULATION EMERGENCIES EXCEPTIONAL DEMAND

  9. INTERRELATED DEMAND CROSS DEMAND Derived demand is the demand for a good which is derived from other goods. The demand for a good is also affected by the price of its substitute or complementary goods. Cross demand can be divided into: joint demand and competitive demand. DERIVED DEMAND

  10. DEFINITION OF SUPPLY Supply is defined as theability and willingness to sell or produce a particular product and services in a given period of time at particularprice, ceterisparibus.

  11. P  Qss P  Qss LAW OF SUPPLY Law of supply states that the higher the price of a good, the greateris the quantity suppliedfor that good and lower the price, quantity supplied is lower, ceteris paribus. POSITIVE RELATIONSHIP

  12. Supply Schedule SupplyCurve Price Quantity 12 9.0 10 S 10 8.5 8 8 6 8.0 6 SS 4 7.5 4 S 2 7.0 2 0 1 4 2 3 5 SUPPLY SCHEDULE AND SUPPLY CURVE

  13. INDIVIDUAL AND MARKET SUPPLY INDIVIDUAL SUPPLY The relationship between quantity of a product supplied by a single sellerand its price. MARKET SUPPLY The relationship between total quantity of a product supplied by adding all the quantities supplied by all sellersin the market and its price.

  14. CHANGE IN QUANTITY SUPPLIED CHANGE IN SUPPLY Price Price SS0 SS SS1 Quantity Quantity CHANGES IN QUANTITY SUPPLIED AND CHANGE IN SUPPLY • Movement along the supply curve • Price changes and other factors are constant • Downward movement: Decrease in quantity supplied(contraction) • Upward movement: Increase in quantity supplied (expansion) • Shift in the supply curve • Occurs when changes in other factors and price remains constant • Increase in supply (SS0  SS1 ) • Decrease in supply (SS1  SS0 )

  15. Wage Rate 20 15 10 5 Labour 0 1 2 3 4 5 6 EXCEPTIONAL SUPPLY Exceptional supply is against the Law of Supply where as price increases, the quantity supplied decreases and vice versa Income Effect (Exceptional Supply Curve) Substitution Effect

  16. Cost of Production Price of Related Goods Government Policies DETERMINANTS OF SUPPLY Expectation Technological Advancement Number of Sellers THE DETERMINANTS OF SUPPLY

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