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Economics Demand

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43 views7 pages

Economics Demand

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goornadenk
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© © All Rights Reserved
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 Effective demand is demand that is supported by the ability to pay

 Individual is demand for a single consumer and market demand is demand for all the
consumers in the market.

 The law of demand states that as the price of a good or service increases, the quantity
demanded for that good or service decreases, and vice versa.

when the price of a product goes up, consumers tend to buy less of it, and when the
price goes down, they tend to buy more

 A demand curve is a graphical representation of the relationship between the price of a


good or service and the quantity demanded by consumers. It is a downward-sloping
curve, indicating the inverse relationship between price and quantity demanded. The
demand curve typically slopes downwards from left to right.

Movement along the demand curve refers to changes in the quantity demanded of a
good or service in response to changes in its price. These movements occur when there is a
change in the price of the good or service, leading to a movement along the existing demand
curve.

 Extension in Demand occurs when the quantity demanded of a product increases due to
its decrease in price. As a result, the demand curve shifts to the right.
For example, if the price of bananas decreases from 12 to 8 rupees per dozen, and the
consumer buys two dozen bananas instead of one, then an extension of demand has occur

 Contraction in Demand occurs when the price of a good or service increases and the
quantity demanded decreases. Therefore, the demand curve shifts to the left.
For example, If the price of apples increases, the demand for apples in the market will
decrease.
The determinants of demand are:
 Income
 Price and availability of resources
 Tastes and preferences
Shifts in the demand curve
A shift in the demand curve occurs when the balance of supply and demand changes.
The curve shifts to the right if the determinant causes demand to increase.

For example, as there is an advancement in technology, more people may want to buy
smartphones leading to an increase in demand for smartphones which will therefore cause a
right shift in demand curve.

A leftward shift in demand means that consumers are demanding fewer quantities of a good at every
price point, thus shifting the demand curve to the left.

For example, if a research on effects of drinking coffee stated that coffee diminish your life expectancy
or that drinking coffee in excess can cause heart attacks people would buy less coffee which may lead to
a decrease in demand for coffee therefore a left shift in demand curve.
Types of demand
 Joint Demand: Joint demand happens when two or more goods are demanded together
to satisfy a particular need or want. An example would be the demand for cars and
gasoline, as cars require gasoline to operate. It is a complement.

 Derived Demand: Derived demand is the demand for a good or service that is use for
the production of another good or service. For example, the demand for steel is derived
from the demand for construction.

 Alternative demand: it is the substitute of a product. for example, a well known brand of
sweet chilli sauce and an own label brand from a supermarket. An increase in price of
one product will increase demand of the substitute.

SUPPLY
o Effective supply refers to the quantity of goods and services that producers are willing
and able to supply to the market at various price levels within a specific period.

o Individual supply is the amount of goods and services a single business intends to sell at
a given price. Market supply is the total amount of goods and services all businesses in
the market intend to sell at a given price

o The law of supply describes the relationship between the price of a good or service and
the quantity supplied by producers. as the price of a good or service increases, the
quantity supplied by producers will also increase.
o
o The supply curve illustrates the relationship between the price of a good or service and
the quantity supplied by producers. the supply curve slopes upward from left to right,
indicating that higher prices lead to higher quantities supplied, and lower prices lead to
lower quantities supplied.
o Movement along the supply curve, known as extension and contraction in supply,
occurs when there is a change in the quantity supplied due to a change in the price of
the good or service while other factors remain constant.
o
o Extension in supply: This happens when the price of a good or service increases, leading
to producers supplying more of that good or service at each price level. This results in a
rightward movement along the supply curve, indicating an increase in quantity supplied.

o Contraction in supply: This occurs when the price of a good or service decreases, causing
producers to supply less of that good or service at each price level. This results in a
leftward movement along the supply curve, indicating a decrease in quantity supplied0

The determinants of supply are :


o Costs
o The size and nature of industry
o The change in price of other products
o Government policy
o Other factors
Shifts in the supply curve
The supply curve is drawn on the assumption that other than price, all other factors that
might affect supply are unchanged.

A shift to the right in the supply curve occurs when the quantity supplied increases at
each price level.

It may mean that :


o A decrease in costs of production
o Growth in the size of the industry
o A decrease in the price of competitors goods
o A decrease in an indirect tax or increase in subsidy

A shift to the left in the supply curve occurs when supply decreases

It may mean that :


o An increase in costs of production
o Decline in the size pf the industry
o An increase in the price of competitors goods
o Increase in an indirect tax or fall in subsidy

Types of supply
joint supply: refers to a product or process that can produce two or more outputs.

Equilibrium
Market equilibrium is a state where the supply and demand in a market are equal. This means
that the market is in balance.
Market disequilibrium occurs when quantity supplied is not equal to the quantity demanded;
when a market is experiencing a disequilibrium, there will be either a shortage or a surplus.

A shift in the demand curve can have significant effects on the equilibrium price and quantity in
a market. When the demand curve shifts, it means that the quantity demanded at each price
level has changed, usually due to factors such as changes in consumer preferences, income
levels, prices of related goods.

1. Increase in Demand: If there is an increase in demand, the demand curve shifts to the
right. This means consumers are willing to buy more at every price level. As a result:
o Equilibrium price rises: With increased demand, producers are willing to supply more at
higher prices, driving prices up to achieve a new equilibrium.
o Equilibrium quantity increases: Both the higher price and increased demand lead to a
higher quantity being supplied and demanded in the market.

2. Decrease in Demand: Conversely, if there is a decrease in demand, the demand curve


shifts to the left. This indicates consumers are willing to buy less at every price level.
Consequently:

o Equilibrium price falls: With decreased demand, producers need to lower prices to
encourage sales, leading to a lower equilibrium price.
o Equilibrium quantity decreases: The lower price and decreased demand result in a lower
quantity being supplied and demanded in the market.
A shift in the supply curve can also have significant effects on the equilibrium price and quantity
in a market. When the supply curve shifts, it means that the quantity supplied at each price
level has changed, typically due to factors such as changes in production costs, input prices,
technology, or expectations.

1) Increase in Supply: If there is an increase in supply, the supply curve shifts to the
right. This indicates that producers are willing to supply more at every price
level.

o Equilibrium price falls: With increased supply, producers need to lower prices to sell the
larger quantity they are willing to produce, leading to a lower equilibrium price.
o Equilibrium quantity increases: Both the lower price and increased supply lead to a
higher quantity being supplied and demanded in the market.

2) Decrease in Supply: if there is a decrease in supply, the supply curve shifts to the
left. This means that producers are willing to supply less at every price level. As a
result:

o Equilibrium price rises: With decreased supply, producers can command higher prices
for the limited quantity they are willing to produce, leading to a higher equilibrium
price.
o Equilibrium quantity decreases: The higher price and decreased supply result in a lower
quantity being supplied and demanded in the market.

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