b.e mazibuko 201281434

B.E MAZIBUKO201281434

PROFESSIONAL STUDIES 3A

DEMAND & SUPPLY

•Demand

•Supply

•Market Equilibrium

•Examples

•Price ceiling/floor

DEMAND

• behavior of buyers

• relationship between

• quantity demanded of a good

• price

• holding other factors constant

DEMAND• Behaviour of buyers

• Relationship between

• Quantity demanded of a good

• Price

• Holding other factors constant

Demand and its Determinants: • A General Definition:

Demand is the quantity of a good or resource that buyers (or demanders) are willing and able to buy under a given set of conditions over a given period of time.

• Conditions: price, income, taste, prices of related goods, expected prices, number of buyers, etc.

http://www.itutor.com/

DEMAND

Quantity demanded is the amount

of a good that buyers are willing and able

to purchase.

DEMAND CURVE

• The demand curve is a graph illustrating how much of a given product a household would be willing to buy at different prices.

$3.002.50

2.001.501.00

0.50

21 3 4 5 6 7 8 9 10 1211

Price of Goods

Qd0

Price Quantity$0.00 120.50 101.00 81.50 62.00 42.50 23.00 0

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QUANTITY DEMANDED (QD)

• amount of good or service

• unit of measure

• per unit of time

• “2 bottles of water per day”

LAW OF DEMANDIf the price of a good

then the Qd

holding other things constant!!!

WHY?

• higher price makes you feel poorer

• income effect

• higher price on one good,

substitute other goods.

• substitution effect

individual demand

demand curve for 1 buyer

market demand**

demand curve for all buyers

add up individual Qd for each price

CHANGE IN QUANTITY DEMANDED VERSUS CHANGE IN DEMAND

Change in Quantity DemandedMovement along the demand curve.

Caused by a change in the price of the product.

CHANGES IN QUANTITY DEMANDED

0

D1

Price of Cigarettes per Pack

Number of Cigarettes Smoked per Day

A tax that raises the price of cigarettes

results in a movement along the

demand curve.

A

C

20

2.00

Rs.4.00

12

CHANGE IN QUANTITY DEMANDED VERSUS CHANGE IN DEMAND

Change in DemandA shift in the demand curve, either to the left

or right.

Caused by a change in a determinant other than the price.

CHANGES IN DEMAND

0

D1

Price of Ice-Cream Cone

Quantity of Ice-Cream Cones

D3

D2

Increase in demand

Decrease in demand

CHANGE IN QUANTITY DEMANDED VERSUS CHANGE

IN DEMANDVariables that Affect Quantity

Demanded

A Change in This Variable . . .

Price Represents a movementalong the demand curve

Income Shifts the demand curve

Prices of relatedgoods

Shifts the demand curve

Tastes Shifts the demand curve

Expectations Shifts the demand curve

Number ofbuyers

Shifts the demand curve

TWO SIMPLE RULES FOR MOVEMENTS VS. SHIFTS

• Rule One• When an independent variable changes and that variable does not

appear on the graph, the curve on the graph will shift.

• Rule Two• When an independent variable does appear on the graph, the curve

on the graph will not shift, instead a movement along the existing curve will occur.

CONSUMER INCOMENORMAL GOOD

Rs.3.00

2.50

2.001.501.00

0.50

21 3 4 5 6 7 8 9 10 1211



0

Increasein demand

An increase

in income...

D1

D2

CONSUMER INCOMEINFERIOR GOOD

Rs.3.00

2.50

2.001.501.00

0.50

21 3 4 5 6 7 8 9 10 1211



0

Decreasein demand

An increase

in income...

D1D2

IMPORTANT!!

• Change in demand-- occurs when other factors change-- shift to a new demand curve

• change in demand• NOT caused by change in price of

the good

SUPPLY

• behavior of sellers

• relationship between

• quantity supplied of a good

• price

• holding other factors constant

SUPPLY

Quantity supplied is the amount of a good that sellers are willing and

able to sell.

SUPPLY CURVE

The supply curve is the upward-sloping line relating price to

quantity supplied.

SUPPLY CURVE

Rs.3.002.502.00

1.501.00

0.50

21 3 4 5 6 7 8 9 10 1211



0

Price Quantity 0.00 0 0.50 0 1.00 1 1.50 2 2.00 3 2.50 4 3.00 5

LAW OF SUPPLYIf the price of a good

then the Qs

holding other things constant!!!

WHY?

• Holding costs constant

• higher price means higher profit margin

SUPPLY SCHEDULE

The supply schedule is a table that shows the relationship

between the price of the good and the quantity supplied.

SUPPLY SCHEDULE P Qs

Price = $/bottle

Qs = bottles/day

$2.00 3$1.50 2

$1.00 1$.50 0

CHANGES IN SUPPLY

• if other factors do change,

• change in supply

• shift to a new supply curve

CHANGE IN QUANTITY SUPPLIED VERSUS CHANGE IN SUPPLY

Change in Quantity SuppliedMovement along the supply curve.

Caused by a change in the market price of the product.

CHANGE IN QUANTITY SUPPLIED

1 5



0

S

1.00A

CRs.3.00

A rise in the price of ice cream cones

results in a movement along the supply curve.


Change in SupplyA shift in the supply curve, either to the left or

right.

Caused by a change in a determinant other than price.

CHANGE IN SUPPLY



0

S1 S2

S3

Increase in Supply

Decrease in Supply


Variables that Affect Quantity Supplied

A Change in This Variable . . .

Price Represents a movement along the supply curve

Input prices Shifts the supply curve

Technology Shifts the supply curve

Expectations Shifts the supply curve

Number of sellers Shifts the supply curve

MARKETS

A market is a group of buyers and sellers of a particular good or service.

The terms supply and demand refer to the behavior of people . . . as they interact with one another in markets.

MARKETS

Buyers determine demand.

Sellers determine supply.

SUPPLY AND DEMAND TOGETHER

Equilibrium PriceThe price that balances supply and demand. On

a graph, it is the price at which the supply and demand curves intersect.

Equilibrium QuantityThe quantity that balances supply and demand.

On a graph it is the quantity at which the supply and demand curves intersect.

SUPPLY AND DEMAND TOGETHER

Price Quantity Rs 0 0 0.50 0 1.00 1 1.50 4 2.00 7 2.50 10 3.00 13

Price Quantity Rs 0 19 0.50 16 1.00 13 1.50 10 2.00 7 2.50 4 3.00 1

Demand Schedule

Supply Schedule

At Rs.2.00, the quantity demanded is equal to the quantity supplied!

Supply

Demand



EQUILIBRIUM OF SUPPLY AND DEMAND

21 3 4 5 6 7 8 9 10 12110

Rs.3.002.502.00

1.501.00

0.50

Equilibrium



21 3 4 5 6 7 8 9 10 12110

Rs.3.002.50

2.00

1.501.00

0.50

Supply

Demand

Surplus

EXCESS SUPPLY

SURPLUS

WHEN THE PRICE IS ABOVE THE EQUILIBRIUM PRICE, THE QUANTITY SUPPLIED EXCEEDS THE QUANTITY DEMANDED. THERE IS EXCESS SUPPLY OR A SURPLUS. SUPPLIERS WILL LOWER THE PRICE TO INCREASE SALES, THEREBY MOVING TOWARD EQUILIBRIUM.

EXCESS DEMAND

Quantity ofIce-Cream Cones

Price ofIce-Cream

Cone

Rs.2.00

0 1 2 3 4 5 6 7 8 9 10 11 12 13

Supply

Demand

Rs.1.50

Shortage

SHORTAGE

WHEN THE PRICE IS BELOW THE EQUILIBRIUM PRICE, THE QUANTITY DEMANDED EXCEEDS THE QUANTITY SUPPLIED. THERE IS EXCESS DEMAND OR A SHORTAGE. SUPPLIERS WILL RAISE THE PRICE DUE TO TOO MANY BUYERS CHASING TOO FEW GOODS, THEREBY MOVING TOWARD EQUILIBRIUM.

THREE STEPS TO ANALYZING CHANGES IN EQUILIBRIUM

Decide whether the event shifts the supply or demand curve (or both).

Decide whether the curve(s) shift(s) to the left or to the right.

Examine how the shift affects equilibrium price and quantity.

HOW AN INCREASE IN DEMAND AFFECTS THE EQUILIBRIUM

Price ofIce-Cream

Cone

2.00

0 7 Quantity ofIce-Cream Cones

Supply

Initialequilibrium

D1

1. Hot weather increasesthe demand for ice cream...

D2

2. ...resultingin a higherprice...

Rs.2.50

103. ...and a higherquantity sold.

New equilibrium

S2

HOW A DECREASE IN SUPPLY AFFECTS THE EQUILIBRIUM

Price ofIce-Cream

Cone

2.00

0 1 2 3 4 7 8 9 11 12 Quantity ofIce-Cream Cones

13

Demand

Initial equilibrium

S1

10

1. Shortage of milk reducesthe supply of ice cream...

Newequilibrium

2. ...resultingin a higherprice...

Rs.2.50

3. ...and a lowerquantity sold.

REFERENCES

• Amin Hanif, Chief Executive Officer at The federation of lazy jobless people (FLJP) on Nov 03, 2011

• itutor on Aug 28, 2013

• MBA CORNER By Babasab Patil (Karrisatte) on Feb 24, 2012

http://www.slideshare.net/AminHanif?utm_campaign=profiletracking&utm_medium=sssite&utm_source=ssslideview

http://www.slideshare.net/AminHanif?utm_campaign=profiletracking&utm_medium=sssite&utm_source=ssslideview

http://www.slideshare.net/itutor?utm_campaign=profiletracking&utm_medium=sssite&utm_source=ssslideview

http://www.slideshare.net/BabasabPatil?utm_campaign=profiletracking&utm_medium=sssite&utm_source=ssslideview








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