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Supply and Demand

Supply and Demand. January 15, 2014. What Is Demand?. Demand is a relationship between a product’s price and quantity demanded. The law of demand states that price and quantity demanded are inversely related. Market demand is the sum of quantities demanded by all consumers in a market.

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Supply and Demand

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  1. Supply and Demand January 15, 2014

  2. What Is Demand? • Demand is a relationship between a product’s price and quantity demanded. • The law of demand states that price and quantity demanded are inversely related. • Market demand is the sum of quantities demanded by all consumers in a market.

  3. The Demand Curve P D Q

  4. 2.50 2.00 1.50 1.00 0.50 9 0 1 3 11 13 5 7 Changes in Demand Market Demand Curve for Popcorn Demand Determinants • The number of buyers (an increase causes a rightward demand shift) • Income • For normal products, an increase causes a rightward demand shift. • For inferior products, an increase causes a leftward demand shift. • Prices of other products • For substitute products, a rise in the other product’s price causes a rightward demand shift. • For complementary products, a rise in the other product’s price causes a leftward demand shift. • Consumer preferences • Consumer expectations • Changes in quantity demanded: • are shown by movements along demand curve • are caused by price changes Price ($ per kg) D2 D0 D1 Quantity Demanded (millions of kg per year) .

  5. Change in Quantity Demanded Change in Demand 2.00 2.00 1.50 1.50 Price ($ per can of soda) Price ($ per pair of skis) 1.00 1.00 0.50 0.50 500 500 600 0 0 Quantity Demanded (cans of soda) Changes in Quantity Demanded a b D0 D1 D0 Quantity Demanded (cans of soda)

  6. What Is Supply? • Supply: • is a relationship between a product’s price and quantity supplied • The law of supply states there is a direct relationship between price and quantity supplied.

  7. The Supply Curve P S Q

  8. Supply Determinants Supply determinants include the following factors: • Number of producers (an increase causes a rightward supply shift) • Resource prices (an increase causes a leftward supply shift) • State of technology (an improvement causes a rightward supply shift) • Prices of related products (an increase causes a leftward supply shift) • changes in nature (an improvement causes a rightward shift for some products) • producer expectations (an expectation of lower prices in the future causes an immediate rightward supply shift) P S Q

  9. Changes in Quantity Supplied (a) • Changes in quantity supplied: • are shown by movements along the supply curve • are caused by price changes P S Q

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