DEMAND

&
SUPPLY
Chapter 2
 CHAPTER 2
Theory of Demand
and Supply

Principles of Economics second edition All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T) 2010 Ch. 1: 2
 (C) Aidarohani Samsudin
DEFINITION OF DEMAND
 The quantity of various goods that people are
willing and able to buy at a particular time
and at a given range of prices.

Eg: Ali wish to buy a durian and able to purchase

it at price RM3.00/kg.

A desire without ability to pay is

Not a DEMAND!

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LAW OF DEMAND
 The lower the price, the greater the quantity
demanded, ceteris paribus and vice versa.

 Thus, price and quantity demanded are

negatively related.

P Qd all other things (non-determinants

of demand) remain unchanged

P Qd all other things (non-determinants

of demand) remain unchanged

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 (C) Aidarohani Samsudin
THE INDIVIDUAL DEMAND CURVE

The individual demand

curve shows the relationship
between the price of a good and
the quantity that a single
consumer is willing to buy, or
quantity demanded.

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EG: INDIVIDUAL DEMAND SCHEDULE
Steps of
Demand Schedule for Pizza drawing/plotting
demand curve:-
Price Qty of pizzas
(RM) demanded by ALI per i. Draw Y and X-axis
month
ii. Name the Y-axis as
2 13 price (P)and X-axis as
4 10 quantity demanded
(Q)
6 7
8 4 iii. Plot the graph base
on the information
10 1 given
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THE INDIVIDUAL DEMAND CURVE AND
THE LAW OF DEMAND

Demand curve is downward

sloping due to the law of
demand, reflecting a negative
relationship between price and
quantity demanded

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TUTORIAL 1
Using a graph paper, plot demand curve base on the
information available in the table.

Price/Kg Quantity
(RM) Demanded (‘000Kg)
20.00 4
15.00 6
10.00 10
5.00 16
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MARKET DEMAND?

The summation of the

individual demand
schedules

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 CALCULATING MARKET DEMAND

Quantity demanded per year for potatoes

Price
(pence per Household A Household B Total market demand
kg) (kg) (kg) (tonnes: 000s)

4 3 4 3+4=7

3 4 6

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 Individual Demand Market Demand

•Market demand is the sum of all the

quantities of a good or service demanded per
The individual demand curve
period by all the households buying in the
shows the relationship between the
market for that good or service.
price of a good and the quantity that
a single consumer is willing to
•Market DD = Ali DD + Abu DD + Ahmad DD
buy, or quantity demanded.
•Market demand curve - curve showing the
relationship between price and quantity
demanded by all consumers, ceteris paribus

The Market Demand Curve

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The Individual Demand Curve
 Price of related
Advertisements
goods:
1)Substitute
2)Complementary
Festive Taste and
season & preference
climate Non-Price
Determinants of
Level of Demand Consumers
taxation income

Supply of Population
Expectation
money in @number of
about the
circulation buyers
future price
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 (C) Aidarohani Samsudin
The Impact of a Change in Income
• Higher income • Higher income
decreases the demand increases the demand
for an inferior good for a normal good

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Change in Demand VS Change in
Quantity Demanded
Change in Quantity Demanded Change in Demand

Definition Definition
Movement along demand curve due to Shift in the demand curve due to change in other
the change of price of the good itself factors affecting demand excluding price of the
Factor: good itself
Change in price of a good or service Factors
ceteris paribus. (eg change in the price population, income, price of related goods, etc.
of Milo) Movement
Movement •shift to a new demand curve (to the right or left)

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Movement along the demand curve (P , because Price of a product remains constant
move upward. vv) 14
Variables That Influence Buyers
 (C) Aidarohani Samsudin
SUPPLY
Definition of supply

Supply is the amount of a particular product or

service that a firm would be willing and able to
offer for sale at a particular price during a given
period of time.

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LAW OF SUPPLY
 The higher the price the higher is the
quantity supplied, ceteris paribus and vice
versa.

 Thus, price and quantity supplied are positively

related.
P Qs

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Supply Curve
Price of Ice-Cream
s
$3.00 Price Quantity

2.50 The supply curve is 0.50 0

1.00 1
upward sloping due
2.00 1.50 2
to the law of supply, 2.00 3
1.50
reflecting a positive 2.50 4
relationship between 3.00 5
1.00 price and quantity
supplied
0.50

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0 1 2 3 4 5 6 7 8 9 10 11 12 Quantity of Ice-
Cream Cones
 (C) Aidarohani Samsudin
INDIVIDUAL SUPPLY VS MARKET
SUPPLY
Individual Supply: Market Supply:
 It shows the quantity  The sum of quantity
of a particular seller is supply by all seller in
willing to offer for sale the market at
at a various price different prices

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EXAMPLE: THE INDIVIDUAL SUPPLY OF
EGGS

Price (RM) Quantity (Units)

0.16 80
0.14 60
0.12 50
0.10 40

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EXAMPLE: THE MARKET SUPPLY OF EEGS

Price Seller A Seller B Seller C Market

(RM) Supply
0.16 80 90 120 A+B+C

0.14 60 70 100

0.12 50 50 80

0.10 40 30 50

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Resources Number of
Price@ seller
cost of
production
Non-Price
Determinants of Technology
Level of Supply
taxation

Expectation
about the
Subsidy future price
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CHANGE IN SUPPLY VS CHANGE IN
QUANTITY SUPPLIED
Change in Quantity Supplied Change in Supply
Price
P2 b S
S1 S2
P1 a
P0 c d

Q1 Q2
Quantity Q1 Q2
Definition Definition Quantity
Movement along supply curve due to the Shift in the supply curve due to change in other
change of price of the good itself factors affecting supply excluding price of the
Factor: good itself
Change in price of a good or service Factors
ceteris paribus. (eg change in the price Number of seller, technology, taxes,subsidy etc.
of Milo) Movement
Movement •shift to a new supply curve (to the right or left) 23

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Movement along the supply curve (P , because Price of a product remains constant
move upward. vv)
VARIABLES THAT INFLUENCE
SELLERS
 (C) Aidarohani Samsudin
ASSIGNMENT (ESSAY)
Using a separate diagram, explain and illustrate
whether the following situations would affect the
demand or supply of chicken.

1. The outbreak of bird-flue disease.

2. The increase in the price of chicken feed.
3. The decrease in the price of beef.
4. Consumer’s income increase.
(10 marks)

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