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Introduction To Supply and Demand Power Point

The document provides an overview of supply and demand in economics, detailing the concepts of demand, supply, market equilibrium, and price elasticity. It explains how various factors influence demand and supply, including price changes and non-price determinants, and discusses the implications of shifts in demand and supply curves. Additionally, it covers the significance of price elasticity of demand (PED) and price elasticity of supply (PES) for decision-making in pricing and production strategies.

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rudrasingh.13102008
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12 views65 pages

Introduction To Supply and Demand Power Point

The document provides an overview of supply and demand in economics, detailing the concepts of demand, supply, market equilibrium, and price elasticity. It explains how various factors influence demand and supply, including price changes and non-price determinants, and discusses the implications of shifts in demand and supply curves. Additionally, it covers the significance of price elasticity of demand (PED) and price elasticity of supply (PES) for decision-making in pricing and production strategies.

Uploaded by

rudrasingh.13102008
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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SUPPLY & DEMAND

Economics
DEMAND

The desire, ability,


and willingness to
buy a product or
service
Do You Demand
These?
Desire? Ability? Willingness?
An inverse or negative relationship between
price and quantity demanded. In other
words:
❏ when price goes up, there is a
decrease in quantity demanded
❏ when price goes down, there is an
increase in quantity demanded.
Normal goods: one whose demand
increases as income increases.
Inferior goods: one whose demand
decreases as
income increases.
Substitute: an alternative good.
‘Willing to buy’ – buyers must want a product if
they are going to enter into the market with the
intention of buying it. This is called notional
demand. •
‘Ceteris paribusorother things equal’ –
there are many potential
influences on the demand for a product.
Understanding the
connections between the influences is
very difficult if many of
these elements are changing at the same
time. This is why it is
necessary to apply the ceteris paribus
assumption
Demand Schedule
Price Per # of CDs A listing that shows the
CD Demanded quantity demanded at all
$1 300
prices.
$2 162
$3 94
$4 58
$5 37
$6 25
$10 18
$15 13
$20 10
Demand Schedule
Example
Price Per # of CDs
CD Demanded 30

$27 10
25
$24 13
$21 18 20

$18 25
15
$15 37
$12 58 10

$9 94
5
$6 162
0
$3 300 0 100 200 300
Law of Demand
P= Price QD= Quantity Demanded

P🡹 QD🡻
P🡻 QD 🡹
Item on sale, price mark up,
etc.
Change in Quantity
Demanded
Price

Quantity Demanded
Non-Price Determinants of
Demand
and tastes-
come level means customers are willing and able to buy more
es.
complements-
goods that have a joint demand as they add to the satisfaction that
m another product. Typical examples are cars and petrol, cricket bats
and monitors.
rketing messages are used to inform and persuade customers

olicies-rules and regulations such as imposition of taxes will


d for certain products.
s for merit goods(energy efficient cars,education)help to

emand.
ate of economy impacts the spending pattern of the
Movement and shift of
Demand curve
While movement in demand curve is
caused by price changes only :shift in
demand(Shift of the demand curve to
the new position) is caused by various
non price factors.
Q: What causes a shift in Demand?
A: Non-price determinants
Price

Decrease Increase in
in demand demand

Quantity Demanded
Q: What causes a shift in Demand?
A: Non-price determinants
Price

Decrease Increase in
in demand demand

Quantity Demanded
Q: What causes a shift in Demand?
A: Non-price determinants
Price

Decrease Increase in
in demand demand

Quantity Demanded
1) Buyer’s Income

Income 🡹 Demand🡹
Income 🡻 Demand🡻
Examples:
🗉 Minimum wage increases
🗉 Economic Recession
🗉 The Great Depression
Linear demand functions

A Linear Demand Function represents a


straight-line relationship between the
price and quantity demanded, assuming
changes in the price of a commodity
result in proportional changes in
quantities demanded, with no other
influencing factors.
It can be represented as: Qd = a - bP.
a is the quantity of the product if the price is zero
(its constant)
where p is the price of the good
q is the quantity demanded
and b is the slope of the demand function.
QD=a -bP
Supply
The willingness and ability to
sell a product.

*The higher the price the greater


supply tends to be.
Law of Supply

P= Price QS= Quantity Supplied

P🡹 QS 🡹
P🡻 QS 🡻

Super bowl
commercial
Supply curve: represents the
relationship between the
quantity supplied and the
price of the product
Price

Quantity Supplied
Q: What causes a change in quantity
supplied?
A: Price
Price

Quantity Supplied
Non-Price Determinants of
Supply
Two Tips
Time-The shorter the time period,the
less time suppliers have to increase
their output.
weather-
Opportunity cost
Taxes
innovations
Q: What causes a shift in supply?
A: Non Price Determinants of
Supply
Price

Decrease Increase in
in supply supply

Quantity Supplied
SUPPLY
Price

(The entire line --


ALL Prices & ALL Quantities)

Quantity Supplied
QUANTITY Supplied
Price

(POSITIVE SLOPE)

Quantity Supplied
Change in QUANTITY
Supplied

MOVEMENT
Price

Quantity Supplied
Change in SUPPLY
Price

SHIFT

Quantity Supplied
Linear supply functions

We can show the relationship between the


supply of a product and individual
determinants of supply by using an
equation.
QS=c -dP
Where QS is quantity supplied,
P is price, ‘c’ is the quantity
that would be supplied if the
price was zero and ‘d’ sets the
slope of the
In this case 200 units (‘c’) would be
supplied at a price of zero

of zero
If the value of ‘c’ was 800 then the supply
curve would start at a new place(typically
in the case of subsidy).
on the x-axis and there would be a parallel
shift of the supply curve from the original
one.
Market Equilibrium

occurs when the quantity demanded of a


product is equal to the quantity
supplied.There is no shortages and no
surpluses.

QS = QD
Equilibrium Price – the price that “clears the
market.” No Shortage or Surplus.
Market disequilibrium

occurs when the quantity


demanded for a product is
either higher or lower than the
quantity supplied.
10
9
8
7 Equilibrium Price
6 Equilibrium
Price
5

Equilibrium Quantity
Price

4
3
2
1
0
0 500 1000 1500 2000

Quantity
At $8 there is a surplus of 700

10 Surplus of
700
9
8
7
6
5
Price

4
3
2
1
0
0 500 1000 1500 2000

Quantity
Surplus
Situation in which the quantity supplied is
greater than the quantity demanded at a
given price.

QS > QD
P 🡻
Note: If there is a surplus, prices generally fall
Shortage
The situation in which the quantity
demanded is greater than the quantity
supplied.

QD > QS
P🡹
Note: If there is a shortage, prices generally
rise
A price of $3 causes a shortage of 900 units.

10
9
8
7
6
5
Price

4
3
2
1 Shortage of 900
0
0 500 1000 1500 2000

Quantity
Equilibrium After a Demand
Shift

The shift in the demand curve moves the market


equilibrium from point A to point B, resulting in a
higher price and higher quantity.
Equilibrium After a Supply Shift`

The shift in the supply curve moves the market


equilibrium from point A to point B, resulting in a
higher price and lower quantity.
Price elasticity of demand

A term used to indicate the extent to which


changes in price cause changes in
quantity demanded.
PED- measures the degree of
responsiveness of the quantity
demanded of a product following
a change in its price.
Elastic Demand
Occurs when a relatively small change in
price causes a relatively large change in
the quantity demanded.
Inelastic Demand
Occurs when a change in price causes a
relatively smaller change in the quantity
demanded.
PED
Percentage change in quantity demanded
—--------------------------------------------------
percentage change in price
e.g-If cinema ticket price increases from $ 10
to $11 and this leads to demand falling from
3500 to 3325 customers per week.Calculate
PED.
% change in QD=(3325-3500/3500)x100=-
5%
%change in Price=(11-10/10)x100=10%
The demand for football match
tickets at $50 is 50,000 per week.If
there is a price rise to $ 60
demand falls to 45,000 per week.
calculate PED.
If PED for a product is less than 1 (ignoring
the minus sign)- demand is price
inelastic.
if PED for a product is more than 1
(ignoring the minus sign)- demand is price
elastic.
If the PED is equal to zero then the demand
is perfectly price inelastic.
if the PED is equal to infinity then the
demand is perfectly price elastic.
if the PED is equal to 1 then demand has
THIS
TIME
HABITS,ADDICTIONS AND TASTES
INCOME
SUBSTITUTES
Elastic or Inelastic?
Necessity

The more necessary a good is, the lower the


elasticity, as people will attempt to buy it
no matter the price, such as the case of
insulin for those that need it.

THE DEGREE OF NECESSITY OF A GOODS OR


SERVICES WILL AFFECT THE VALUE OF PED.

NECESSITY-INELASTIC
LUXURY-ELASTIC
THIS
TIME
HABITS,ADDICTION AND TASTES
INCOME
SUBSTITUTES
PED and total revenue
sales revenue-amount of money received by
a supplier from the sale of goods or
service.
SR=Price X quantity demanded
significance of PED for
decision makers
1)Helping producers to decide on their
pricing strategy.
2)Determining taxation policies
3)Deciding which product to impose sales
tax on
PES
Measures the degree of
responsiveness of the quantity
supplied of a product following a
change in its price.
%change in QS
—--------------------
% change in price
Determinants of PES
1)The degree of spare productive
capacity-
2)The level of stocks(inventories)
3)The no.of producers in the industry- The
greater no of firms in an industry,the more
price elastic supply tends to be.
4)Time period-
5)The ease and cost of factor substitution-
Significance of PES for
decision makers
1)creating spare capacity
2)Keeping large volume of stocks
3)improving storage systems to prolong
the shelf life of products.
4)Upgrading and updating the latest
technology
5)improving distribution systems.
6)developing and training employees to
improve labour occupational mobility(to
perform variety of jobs).

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