1. Chapter 2 DEMAND, SUPPLY & MARKET EQUILIBRIUM

3. 1.1 INTRODUCTION Demand & supply interaction Economics decision-making units Market & the circulation flow

8. May’s Demand Schedule and Demand Curve Price of Ice-Cream Cone 0 2.50 2.00 1.50 1.00 0.50 1 2 3 4 5 6 7 8 9 10 11 Quantity of Ice-Cream Cones $3.00 12 Example 1. A decrease in price ... 2. ... increases quantity of cones demanded.

10. The market demand curve is the horizontal sum of the individual demand curves! Price of Ice-Cream Cone Price of Ice-Cream Cone Price of Ice-Cream Cone 2.00 2.00 2.00 4 3 7 1.00 1.00 1.00 8 5 13 Quantity of Ice-Cream Cones Quantity of Ice-Cream Cones Quantity of Ice-Cream Cones Catherine’s Demand Nicholas’s Demand Market Demand + = When the price is $2.00, Catherine will demand 4 ice-cream cones. When the price is $2.00, Nicholas will demand 3 ice-cream cones. The market demand at $2.00 will be 7 ice-cream cones. When the price is $1.00, Catherine will demand 8 ice-cream cones. When the price is $1.00, Nicholas will demand 5 ice-cream cones. The market demand at $1.00, will be 13 ice-cream cones. Example

12. Changes in Quantity Demanded 0 D Price of Ice-Cream Cones Quantity of Ice-Cream Cones A tax on sellers of ice-cream cones raises the price of ice-cream cones and results in a movement along the demand curve. A 8 1.00 B $2.00 4

14. Shifts in The Demand Curve Price of Ice-Cream Cone Quantity of Ice-Cream Cones 0 Increase in demand Decrease in demand Demand curve, D 3 Demand curve, D 1 Demand curve, D 2

24. Ben’s Supply Schedule and Supply Curve Price of Ice-Cream Cone 0 2.50 2.00 1.50 1.00 1 2 3 4 5 6 7 8 9 10 11 Quantity of Ice-Cream Cones $3.00 12 0.50 1. An increase in price ... 2. ... increases quantity of cones supplied.

26. Market Supply Curve

28. Change in Quantity Supplied 1 5 Price of Ice-Cream Cone Quantity of Ice-Cream Cones 0 S 1.00 A C A rise in the price of ice cream cones results in a movement along the supply curve. 0 $3.00

30. Shifts in The Supply Curve Price of Ice-Cream Cone Quantity of Ice-Cream Cones 0 Increase in supply Decrease in supply Supply curve, S 1 Supply curve, S 3 Supply curve, S 2

36. Summary for Movement/Shift in Supply

37. Consumers (Demand) Firms (Supply) DD & SS Interaction Output (Product) Market 1.4 MARKET EQUILIBRIUM 3 set of market condition / effect: (a) The quantity demanded equal the quantity supplied at the current price. This situation called “ equilibrium ” (b) The quantity demanded exceeds the quantity supplied at the current price. This situation called “ excess demand ” or “ shortage ” (c) The quantity supplied exceeds the quantity demanded at the current price. This situation called “ excess supply ” or “ surplus ”

38. Equilibrium Price of Ice-Cream Cone 0 1 2 3 4 5 6 7 8 9 10 11 12 Quantity of Ice-Cream Cones 13 Equilibrium quantity Equilibrium price Equilibrium Supply Demand $2.00

40. Excess Supply (Surplus) Price of Ice-Cream Cone 0 Quantity of Ice-Cream Cones Supply Demand Quantity demanded Quantity supplied Surplus 4 $2.50 10 2.00 7

42. Excess Demand (Shortage) Price of Ice-Cream Cone 0 Quantity of Ice-Cream Cones Supply Demand Quantity supplied Quantity demanded 1.50 10 $2.00 7 4 Shortage

49. 1.6 ACTIVITY ?

50. Supply and Demand Analysis (a) Proton Berhad decreases the price of its car model, Proton Persona from P 0 to P 1. Explain the law of demand and based on it, explain what will happen to the quantity demanded for Proton Persona car . Sketch a graph to illustrate your explanation.

51. (b) What will happen to the Perodua Nautica (substitutes) when the price of Proton Persona car drop? Sketch a graph to illustrate your explanation

52. (c) Assume that Proton Persona cars need a specific regular maintenance service to bring out the performance of the car. Based on situation in (a), what will happen to the demand of that specific regular maintenance service? End

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