PRESENTERS : FATIMA BATOOL

ARSHIA PERVAIZ

TOPIC :

SUPPLY AND DEMAND

GENERAL OBJECTIVES
• To know about supply and demand.
• Students will grasp the importance of supply and demand in our daily lives.
• Analyze market equilibrium.
SPECIFIC OBJECTIVES
• To define the term ‘Supply’ and ‘Demand’.
• Supply and demand effect on prices of goods and services.
• Analyze factors influencing supply and demand.
• Interpret market equilibrium.
• Understand the concept of price elasticity of demand and supply.
 HISTORICAL CONTEXT
The concept of supply and demand has deep historical roots in economics. It
can be traced back to ancient civilizations such as China, Greece, and Rome,
where scholars contemplated the factors influencing prices and quantities of
goods exchanged in markets.
However, the modern understanding of supply and demand emerged during the
late 18th and early 19th centuries with the works of economists like Adam
Smith, David Ricardo, and John Stuart Mill. Adam Smith’s “The Wealth of
Nations” (1776) introduced the idea of the invisible hand, which suggests that
individuals pursuing their self-interest in competitive markets unintentionally
promote the social good. Smith emphasized the role of supply and demand in
determining prices and allocating resources efficiently.
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• During the 19th century, classical economists further developed the theory of
supply and demand. David Ricardo’s theory of comparative advantage
explained how countries benefit from specializing in the production of goods
in which they have a lower opportunity cost. John Stuart Mill refined the
concept of supply and demand and introduced the notion of elasticity, which
measures the responsiveness of quantity demanded or supplied to changes in
price.
 SUPPLY AND DEMAND
Supply:
Supply refers to the total quantity of a specific good or service that producers are
willing and able to provide to the market at various price levels during a particular
period of time.
Example:
An example of supply would be the number of smartphones that Apple is willing
and able to produce and sell at different price points over the course of a year.
DEMAND

Demand refers to the quantity of a good or service that consumers are willing
and able to purchase at various price levels during a specific period of time.
Example:
An example of demand would be the number of people interested in
purchasing iPhones at different prices over the course of a month.
IMPORTANCE OF SUPPLY AND DEMAND IN
ECONOMICS
Supply and demand are the foundational concepts in economics.
Importance of supply and demand in economics are as follows:
1. Pricing strategies
2. Production planning
3. Resources Allocation
4. Market trends
5. Government policies
 LAW OF DEMAND
• The law of demand is a fundamental principle in economics that states that, all else
being equal, as the price of a good or service increases, the quantity demanded for that
good or service decreases, and vice versa. In simpler terms, when the price of
something goes up, people tend to buy less of it, and when the price goes down, they
tend to buy more.
• This inverse relationship between price and quantity demanded can be attributed to
various factors, including substitution effects, income effects, and the law of
diminishing marginal utility. Essentially, as the price of a good increases, consumers
may seek cheaper alternatives, have less purchasing power due to decreased real
income, or derive less satisfaction from consuming additional units of the good. These
factors collectively contribute to the downward slope of the demand curve, which
illustrates the relationship between price and quantity demanded.
FACTOR THAT ARE INFLUENCING
DEMAND

• Price of the Good or Service: As mentioned earlier, there’s an inverse

relationship between the price of a good or service and the quantity demanded.
When the price goes up, demand tends to decrease, and when the price goes
down, demand tends to increase.
• Income: Changes in consumers’ income levels can affect their purchasing
power and, consequently, their demand for goods and services. For normal
goods, as income increases, demand typically rises. For inferior goods,
however, as income increases, demand may decrease.
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• Price of Related Goods: The demand for a particular good can be influenced by the
prices of related goods. Substitutes are goods that can be used in place of one another
(e.g., tea and coffee), and when the price of one rises, demand for the other may
increase. Complementary goods are consumed together (e.g., cars and gasoline), so
when the price of one falls, demand for the other may rise.
• Expectations: Future expectations about prices, income, and other factors can
influence current demand. For instance, if consumers anticipate that the price of a
good will increase in the future, they may buy more of it now to avoid higher costs
later.
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• Demographics: Factors such as age, gender, and population demographics

can also affect demand. For example, an aging population might increase the
demand for healthcare services and decrease the demand for certain
consumer goods.
• Government Policies: Government interventions, such as taxes, subsidies,
regulations, and trade restrictions, can influence demand for certain goods
and services.
DEMAND CURVE
• The demand curve is a graphical
representation of the relationship
between the price of a good or
service and the quantity
demanded for a given period of
time. In a typical representation,
the price appears on the left
vertical axis while the quantity
demanded is on the horizontal
axis.
LAW OF SUPPLY

The law of supply states that, all else being equal, as the price of a
good or service increases, the quantity supplied by producers also
increases, and vice versa. Essentially, producers are willing to
supply more of a good or service at higher prices, and less at lower
prices.
FACTOR THAT ARE INFLUENCING SUPPLY

Cost of Production: The cost of producing goods or services, including raw

materials, labor, and technology, directly impacts supply. If costs rise, supply
may decrease.
Prices of Related Goods: The prices of substitute and complementary goods
can affect supply by influencing production decisions.
Technology: Advancements in technology can increase production efficiency,
reducing costs and boosting supply.
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• Resource Prices: Prices of resources such as labor, land, and capital affect
production costs and thus influence supply.
• Government Policies: Regulations, subsidies, taxes, and tariffs can all
impact supply by affecting production costs or market access.
• Global Events: Events such as wars, economic crises, or pandemics can
have widespread effects on supply chains and production capacities.
 SUPPLY CURVE
A supply curve is a graphical
representation of the relationship
between the quantity of a good or
service that producers are willing and
able to offer for sale at different prices,
holding all other factors constant. It
typically slopes upward from left to
right, indicating that as the price
increases, producers are willing to
supply more of the good or service.
 EQUILIBRIUM
• The word equilibrium has a root in the Latin word Libra, which means weight or
balance.
EXAMPLE OF EQUILIBRIUM

An example of equilibrium in economics is the market equilibrium in supply and demand. It occurs
when the quantity of a good or service demanded by consumers equals the quantity supplied by
producers at a specific price level. At this point, there's no tendency for prices to change because buyers
and sellers are satisfied with the current conditions.
Market Equilibrium
Market equilibrium is a state in economics where the quantity of a good or service supplied by producers
equals the quantity demanded by consumers at a specific price level. In other words, it’s the point where
supply and demand intersect, resulting in no shortage or surplus of the product. At equilibrium, there’s
stability in the market, as buyers are willing to purchase what producers are offering at the given price,
and producers are willing to supply that quantity at that price.
 GRAPHICAL REPRESENTATION OF
EQUILIBRIUM
Graphical representations of equilibrium show the changes in concentration and
time for the reactants and products. These graphs typically have time on the x-axis
and concentration on the y-axis.
 ELASTICITY OF DEMAND AND SUPPLY

• Elastic is a term used in economics to describe a change in the

behavior of buyers and sellers in response to a single variable
like a change in price or other variables for a good or service.
• The price elasticity of demand is the percentage change in the
quantity demanded of a good or service divided by the
percentage change in the price.
• The price elasticity of supply is the percentage change in
quantity supplied divided by the percentage change in price.
GLOBAL PERSPECTIVE ON SUPPLY AND
DEMAND
• A global perspective on supply and demand involves understanding how
these economic forces operate across national borders and how they shape
the interconnectedness of economies worldwide.
• Currency Markets
• Global Economic Imbalances
• Commodity Markets
• International Trade
IMPORTANCE OF UNDERSTANDING SUPPLY AND
DEMAND IN SOCIAL STUDIES AND EVERYDAY LIFE

• Teaching supply and demand in social studies helps students understand how
economies work. It shows how prices are determined, how businesses decide
what to produce, and how consumers make choices. Plus, it’s a fundamental
concept that applies to many aspects of daily life, from buying groceries to
understanding job markets. So, it’s a crucial part of understanding how
societies function economically.
Here are some more detailed examples of how understanding supply and demand
can help students in their everyday lives:
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• Budgeting: Knowing about supply and demand helps students understand why prices
fluctuate for goods and services. For instance, if they learn that the supply of a
particular fruit is low due to bad weather, they’ll understand why its price is higher at
the grocery store. This knowledge can inform their budgeting decisions, helping them
allocate their money more wisely.
• Career Choices: Understanding supply and demand can also influence students’ career
choices. For example, if they see that there’s high demand for jobs in a certain field,
such as technology or healthcare, they may choose to pursue education and training in
those areas to increase their chances of finding well-paying employment.
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• Investing: Students who understand supply and demand may also be better equipped
to make investment decisions. They can analyze market trends and assess the potential
profitability of different investments based on supply and demand dynamics. This can
help them grow their wealth over time and achieve their financial goals.
• Entrepreneurship: For students interested in entrepreneurship, understanding supply
and demand is crucial for identifying business opportunities. By recognizing unmet
needs or areas where demand exceeds supply, they can develop innovative products or
services that meet market demand and potentially achieve business success.
 IN SOCIAL STUDIES
PERSPECTIVE
In social studies, the perspective of supply and demand is often analyzed
within the broader context of economics. Supply and demand are
fundamental economic concepts that explore how goods and services are
produced, distributed, and consumed within a society.
• Market Forces
• Distribution of Resources
• Public Policy
• Globalization