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PB 102 MICROECONOMICS

PB 102 MICROECONOMICS. CHAPTER 2 DEMAND AND SUPPLY THEORY. Arrow Process. Chapter 2: Demand and Supply Theory. Why use graphics from PowerPointing.com?. Demand curve Demand schedule Inverse relationship between price and quantity demanded. Mathematical concept Qd = a-bP.

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PB 102 MICROECONOMICS

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  1. PB 102 MICROECONOMICS CHAPTER 2 DEMAND AND SUPPLY THEORY

  2. Arrow Process Chapter 2: Demand and Supply Theory Why use graphics from PowerPointing.com? • Demand curve • Demand schedule • Inverse relationship between price and quantity demanded Mathematical concept Qd = a-bP Beyond an ordinary demand curve EXCEPTIONAL DEMAND CURVE DETERMINANTS OF DEMAND LAW OF DEMAND INDIVIDUAL AND MARKET DEMAND DEMAND FUNCTION • Price of good • Others factors - Plot individual demand curve and market demand curve Want more?log on to http://ekonomi-ynalin.blogspot.com

  3. How Demand and Supply Interact?

  4. Definition of Demand • The ability and willingness to buy specific quantities of goods given of time at particular price; ceteris paribus Keyword: Ability and willingness to buy Means: all other factors are relatively constant

  5. Law of Demand • States that, the higher the price of a good, the lower quantity demanded for that good and the lower the price, the quantity demanded is higher; ceteris paribus • Inverse relationship exist between price and quantity demanded P DD P DD

  6. Demand schedule

  7. Demand curve • Price 5 4 3 2 1 DD Quantity 2 4 6 8 10

  8. Individual Demand & Market Demand • Individual demand: • The quantity demanded by a single individual • Market demand: • The total quantity of demand in the market • Adding all the quantities demanded by all consumers in the market

  9. Individual Demand

  10. Market Demand

  11. Market Demand Curve

  12. Determinants of Demand • Price of goods • Price of related goods • Consumer’s income • Consumer’s fashion, taste and interest • Population • Expectation about future price • Advertisements • Festive seasons and climate

  13. Price of related goods • Falls into two categories: • Substitude goods – A good can be used to place of another goods. Example: Public bus versus LRT ride; Pepsi-Cola versus Coca-Cola • When price of bus increases, demand for it will reduced and people will look for another alternative which is LRT. Demand for LRT will increase

  14. Price of related goods • Complementary goods – A good can be used together with another good. Example: Disk/pen drive/software and computer • When price of computer increase, demand for it will reduced so demand for software also decreases

  15. Consumer’s income • Falls into two goods: • Normal goods – Demand for it increases as income increases. Example: car, shirt, books • Inferior goods – Demand for it decreases as income increases. Example: low grade rice

  16. Consumer’s fashion, taste and interest • Interest or preferences are an individual’s attitudes toward goods and services. Example: fast food restaurant • Demand changes as consumer’s taste/interest changes • Example: Changes in music, health conscious, fashion, readings.

  17. Population • Demand depends on the size of the total population or number of buyers in the market • An increase in total population, demand for goods and services will be greater

  18. Expectation about future prices • The higher the expected future price of a good, today’s demand for that good will be larger. • Example: When the government going to increase the price of petrol by next week, demand for petrol today will increase

  19. Advertisements • Advertised goods normally have higher demand because of awareness

  20. Festive seasons and climate • During festive seasons, different products will be demanded and higher demand for that particular products • Example: Hari Raya, dry season, monsoon season.

  21. Demand function • Mathematical concept • Qd = a – bP • Where : Qd is quantity demanded a is quantity demanded when price is zero b is slope of demand curve P is price P/S: Refer notes given

  22. Exceptional demand curve • In some cases, demand curve might be vary from ordinary demand curve • The situation exist for Giffen goods and luxury goods • Giffen goods – demand is lower when price is decrease • Luxury goods – demand is greater when price is increase

  23. Exceptional Demand Curve • Luxury goods/ Veblen goods P Upper regressive DD1 DD P0 DD Qty

  24. Exceptional Demand Curve • Giffen goods P DD P0 DD Bottom regressive DD1 Qty

  25. Change in Quantity Demanded • Movement along the demand curve • Occurs when price of own goods change • Upward movement – decrease in quantity demand (contraction) • Downward movement – increase in quantity demand (Expansion)

  26. Change in Demand • Shift in demand curve • Occurs when there are change in other factors of demand (taste, income, population, price of related goods) • Shift to the right – increase in demand • Shift to the left – decrease in demand

  27. Giffen Goods

  28. Demand phenomenon • What do you think?

  29. Demand phenomenon • Explain the picture below

  30. PB102: MICROECONOMICS CHAPTER 2 DEMAND AND SUPPLY THEORY

  31. Exceptional Supply curve Determinants of Supply Law of supply Supply theory Supply Function Firms and Industries Demand Curve This illustration is a part of ”Spheres”. See the whole presentation here slideshop.com/3d-spheres

  32. Supply phenomenon Source: www.casavaria.com/hotspring/2008...r-areas/

  33. Supply phenomenon Source: anup-adelgundis.trip0d.eu/100409/

  34. Food crisis Source: www.toonpool.com/cartoons/Food%2...is_17153

  35. Food crisis Source: gaianeconomics.blogspot.com/2008...ive.html

  36. Definition of Supply • The ability and willingness to sell or produce particular good and services in a given period of time at particular price, ceteris paribus

  37. Law of Supply • States that the higher the price of a good, the greater is the quantity supplied for that good and the lower the price of a good, quantity supplied is lower, other things being equals (ceteris paribus) P QS P QS

  38. Supply Schedule

  39. Supply Curve • Price (RM) 5 4 3 2 1 SS Quantity supplied 0 2 4 6 8 10

  40. Supply Schedule & Supply Curve

  41. Individual Supply • The relationship between the quantity of product supplied by a single seller and its price

  42. Market Supply • The relationship between the total quantity of a product supplied by adding all the quantities supplied by all sellers in the market • Seller 1 + Seller 2 + Seller 3 = Market Supply

  43. Market Supply Schedule for Pen

  44. Determinants of Supply • Goods own price • Price of related goods • Cost of production • Expected future price • Technological advancement • Number of suppliers • Government policies

  45. Goods own price • The basic supply relationship is between the price of a good and the quantity supplied. • The relationship is positive or direct meaning that an increase in price will induce and increase in the quantity supplied.

  46. Price of related goods • Consists of two goods: • Substitute goods – an increase in the price of a substitute good in production, lower the supply of the good • When price of Pepsi increases, supply of Pepsi will be increased and supply of Coke will be decreased

  47. Price of related goods • Second category: • Complementary goods – an increase in the price of a good will increase the supply of another complement good • When price of pen increases, supply for pen will be increased and supply of ink also increased since both are complementary goods

  48. Cost of production • The supply will change in response wikth the factor of production (labor, capital, land) • When cost of production increases, the supply will decrease • Ex: An increase in the wages of the labor and price of the capital equipment used to produce tapes, will reduce the supply of tapes

  49. Expected Future Price • The higher the expected future price of a good, the smaller is today’s supply of a good • Ex: When government announced an increase in the price of sugar, the today’s supply will decrease because the supplier wants to gain higher profit with new price

  50. Technological Advancement • Changes in technology is the most influence on supply • New technologies enable producers to use fewer factors of production will lower the cost of production and increase supply • Ex: When new technology was introduced in paddy harvesting, supply of rice increased

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