Click Here http://www.eacademy4u.com/ Online Educational Website For You

1. Demand and Supply
1

2. Demand and Supply
• By the end of the lecture, you are
expected to be able to:
– Explain and elaborate with example
about law of demand and supply
– Plot a demand and supply curves
– Distinguish between individual
demand/supply and market
demand/suppy
– Distinguish between change in Demand/
Supply and Change in Qd/Qs
2

3. Demand
• Demand can be defined as a desire to buy
a good or a service accompanied by
ability and willingness to pay.
• Effective demand
• Demand curve = A curve that shows the
relationship between price (P) and
quantity demanded (Qd)
• Demand schedule = Shows the specific
quantity of a good or service that people
are willing and able to buy at different
prices
3

4. Law of Demand
• The principle that there is an
inverse relationship between the
price of a good and the quantity
buyers are willing to purchase in a
defined time period, ceteris
paribus
• Shown by the downward sloping
demand curve
4

5. Individual’s Demand Curve for Compact Discs
P A
Individuals Buyer’s Demand Schedule for Compact Discs
$20
Point Price Quantity demanded
per compact disk (per year)
A $20 4
$15 B B $15 6
C $10 8
C D $5 16
$10 7
D
$5
Demand Curve
4 8 16 20 Q 5

6. Individual Demand & Market
Demand
• Individual demand – demand
by an individual consumer
• Market demand- The
summation of the individual
demand schedules
6

7. CHANGE IN Qd vs. CHANGE IN
D A change in quantity demanded is a movement
•
along a stationary demand curve caused by a
change in price.
Extension of demand (rise in Qd due to P↓)
Contraction of demand (fall in Qd due to P↑)
• When any of the nonprice determinants of
demand changes, the demand curve responds by
shifting.
Increase in demand (demand curve shifts right)
Decrease in demand (demand curve shifts left)
7

8. P A fall in price causes an extension of
demand (increase in quantity
demanded)
20
A
15
B
10
D
5
Q
10 20 30 40 50
8

9. P An increase in price causes a
contraction of demand (decrease in
quantity demanded)
20
A
15
B
10
D
5
Q
10 20 30 40 50
9

10. P
Demand curve shifts right (increase in quantity
demanded not due to a price change)
20
15 A B
10
D2
5 D1
Q
10 20 30 40 50
10

11. P
Demand curve shifts left (fall in quantity
demanded not due to a price change)
20
15 B A
10
D2
5 D1
Q
10 20 30 40 50
11

12. What can cause a shift in
a Demand Curve?
1. Number of buyers in the
market
2. Tastes and preferences
3. Income
4. Expectations of consumers
5. Prices of related goods
12

13. Normal Good & Inferior Good
• Normal good - Any good for which
there is a direct relationship between
changes in income and its demand
curve (Y↑D↑)
• Inferior good - Any good for which
there is an inverse relationship
between changes in income and its
demand curve (Y↑D↓)
13

14. Substitute Goods &
Complementary Goods
• Substitute goods - Goods that
compete with one another for
consumer purchases (goods that
perform the same functions)
• Complementary goods - Goods
that are jointly consumed with
another good
14

15. Supply
• Supply refers to the quantity of a
good that sellers are willing and able
to offer for sale in a given time
period.
• Law of supply - The principle that
there is a direct relationship between
the price of a good and the quantity
sellers are willing to offer for sale in a
defined time period, ceteris paribus
15

16. Supply schedule and supply curve
• Supply schedule – shows specific
quantity of a good or a service that
suppliers are willing and able to
offer for sale at different prices
• Supply curve – a curve that shows
the relationship between price and
quantity supplied
16

17. P
A company’s Supply
Curve for Compact Supply Curve
Discs
20 Point Price Quantity A
15 A
B
20
10
40
30
C 6 20
10
B
5 C
10 20 30 40 Q 17

18. Individual Supply and Market
Supply
• Individual supply – supply by an
individual seller
• Market supply - the horizontal
summation of all the quantities
supplied by all sellers at various
prices that might prevail in the
market
18

19. CHANGE IN Qs vs. CHANGE IN S
• A change in quantity supplied is a movement
along a stationary supply curve caused by a
change in price.
Extension of supply (rise in Qs due to P ↑)
Contraction of supply (fall in Qs due to P ↓)
• When any of the nonprice determinants of
supply changes, the supply curve responds by
shifting.
Increase in supply (rightward shift)
Decrease in supply (leftward shift)
19

20. When price changes, what happens?
• The curve does not shift - there is a change in
the quantity supplied
• Extension of supply (P increase)
• Contraction of supply (P fall)
When something changes other than
price, what happens?
• The whole curve shifts - there is a change in
supply
• Increase in supply (supply curve shifts right)
• Decrease in supply (supply curve shifts left)
20

21. P
An extension of supply
(increase in quantity supplied S
20
due to a price rise)
A
15
B
10
5
10 20 30 40 Q 21

22. P
A contraction of supply
(decrease in quantity supplied S
20
due to a price fall)
A
15
B
10
5
10 20 30 40 Q 22

23. P Increase in supply (supply curve
shifts right)
20 S1 S2
15
10
5
10 20 30 40 Q 23

24. P Decrease in supply (supply curve
shifts left)
20 S1 S2
15
10
5
10 20 30 40 Q 24

25. What can cause a shift in
a Supply Curve?
1. Number of sellers in the market
2. Technology
3. Resource prices
4. Taxes and subsidies
5. Expectations of producers
6. Prices of other goods the firm could
produce
25