CHAPTER I

INTRODUCTION

A. Background.

In the everyday economic life there is always a demand and supply that influence
each other. In economics said supply and demand is not foreign to us, but our knowledge of
understanding of these two words is still very minimal. In fact, most of us can only say it.

At the time of modren as now most people assume that economics is a science that
just begins and ends with the law of demand and supply. Sure only assumption relies too
heavily on economics as a science that is very simple. But in my opinion the law known as
the law of supply and demand is an important part of our understanding of the market. When
we talk about the market certainly does not escape from the trade. The most common trade is
a trade in the market.

In the market economy of course there are the so-called demand and supply. Demand
is the number of items requested in the amount within a certain time, while supply is the
amount of goods or services that are available and can be offered by the producer to the
consumer at every price level over a specific time period. From here we already see that the
Demand and Supply has a close relationship with one another to support trade. First we need
to know what are the factors that influence demand and supply, the next we can see how the
demand and supply membentun market prices.

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B. Problem

a. What is the definition of demand and supply?

b. What is the factors that affect supply and demand?

c. What is the competition?

C. Objectives

a. In order for students to know the definition of demand and supply.

b. In order for students to know the factors that affect supply and demand.

c. In order for students to know the competition.

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 CHAPTER II

DISCUSSION

A. Definitions and Law of Demand and Supply.

1. Demand and Supply Definitions.

Economists use the concept of demand to describe the quantity of a good or service
that a household or firm chooses to buy at a given price. It is important to understand that
economists are concerned not just with what people desire but with what they choose to buy
given the spending limits imposed by their budget constraint and given the prices of various
goods. In analyzing demand, the first question economists ask is how the quantity of a good
purchased by an individual changes as the price changes, when everything else is kept
constant.1

Demand is the amount of goods or commodities requested by the purchaser to meet

the needs of the social community in a market economy.2 Demand shows how many of a
product consumers are willing and able to buy at a particular price during a specified time
period.

Economists use the concept of supply to describe the quantity of a good or service
that a household or firm would like to sell at a particular price. Supply is the amount of goods
or commodities to be produced and offered for sale in order to meet the needs of the social
community in a market economy. Supply is not just the amount of something there, but the
willingness and ability of potential sellers to produce and sell it.3

2. Law of Demand and Supply.

The law of demand is as price decreases, the quantity demanded increases. As the
price rises, the quantity demanded decreases. In the same way, The Law of Supply states that

1
Stiglitz Joseph E & Walsh E. Carl, Economics (W. W. Norton & Company, Inc., 500 Fifth Avenue, New York, N.
Y. 10110 :2005)p.54

2
Gilarso, Pengantar ilmu Ekonomi Mikro (Yogyakarta: Kanisius, 2003)
3
Stiglitz Joseph E & Walsh E. Carl, Economics (W. W. Norton & Company, Inc., 500 Fifth Avenue, New York, N.
Y. 10110 :2005)p.61

3
“when the price of a good rises, and everything else remains the same, the quantity of the
good supplied will also rise.” In short,4

P↑→QD↓

Note : P = price and D = demand

The law of demand is higher prices of goods, the less quantity of goods demanded and
conversely the lower the price of goods more and more quantity of goods demanded. An
increase in demand led to rising prices at the equilibrium price and quantity equilibrium. The
drop in demand will lead to a decrease in the equilibrium price and quantity equilibrium.

The law of supply results from the general tendency for the marginal cost of
producing a good or service to increase as the quantity produced increases. The law of supply
is as price increases, supply increases but as price decreases, supply decreases. In the same
way, The Law of Supply states that “when the price of a good rises, and everything else
remains the same, the quantity of the good supplied will also rise.” In short,5

↑P→QD↑

The law of supply is higher prices of goods, the more the number of items offered by
sellers and conversely the lower the price of an item, the less the amount of goods offered.
The increase in the offer price will lead to a decrease in the equilibrium price and cause an
increase in the equilibrium quantity. A decrease in supply causes equilibrium price increases
and causes a decrease in equilibrium quantity.

According to the explanation, in our opinion supply and demand price are the
phenomenon that often happened and this due to create an equilibrium price and equilibrium
quantity among the society. Equilibrium is a situation in which opposing forces balance each
other. Equilibrium in a market occurs when the price balances the plans of buyers and sellers.
The equilibrium price is the price at which the quantity demanded equals the quantity
supplied. The equilibrium quantity is the quantity bought and sold at the equilibrium price. It
can be happens when the price of a thing is equivalent with their quantity in the market.

4
Bucknall kevin, An Introduction to Economics, (ebook)p.8
5
Ibid,p.10

4
B. Factors Affecting the Demand and Supply6.

1. Factors Affecting Demand

a. Consumer Behavior or Consumer Tastes

Currently the blackberry mobile phones are the trend and many are bought, but the
next few years may blackberry already considered old-fashioned.

b. Availability and Pricing Similar Goods Substitutes and Complementary

If the bread does not exist or was very expensive then meises, butter and margarine
will drop its request.

c. Income or Income Consumers

People who have a large salary and benefits he can buy things he wants, but if
incomes are low then someone might save consumption of goods bought so rarely buy.

d. Estimated Price in the Future

Goods whose prices are expected to rise, then people will hoard or buy when the price
is low, for example such as petrol / gasoline.

e. The amount or intensity of Consumer Needs

When the bird flu and swine flu craze, protective masks products will be very popular.
In the month of fasting (Ramadan) request cantaloupe, cucumber, grass jelly, syrup, ice
cubes, dates, and so forth would be very high compared to other months.

2. Factors Affecting Supply.

a. The cost of production and technology used.

If the cost of manufacture / production of a product is very high then the manufacturer
will make the product less the price is expensive because of the fear of not being able to
compete with similar products and the products are not sold. With their advanced technology
could lead to cuts production costs and trigger a fall in prices.

6
Robert S. Pindyck, Mikro Ekonomi (Jakarta: PT. Indeks, 2009)

5
 b. Objectives of the Company.

Companies aiming for maximum profit (profit-oriented) will sell its products at a
large profit margin so the selling price so high. If companies want their products and the
market demand, the company set a low price with low profit level that will lower selling
prices to attract consumers.

1. Tax.
Tax rises will lead to a higher selling price so that companies offer fewer
products due to consumer demand fell.
2. The availability and price of goods replacement / complement.

If there is a similar competitor products on the market at a cheap price then

consumers will be the switch to cheaper products, causing a decline in demand,
eventually also offer reduced.

3. Predictions / forecasts of future price.

When the selling price will rise in the future the company will prepare by
increasing production output in the hope of offering / sell more when prices rise due
to various factors.

C. Competition.

Competition classified into two types :7

1. Perfect competition.

Perfect market competition is a form of interaction between demand and supply where
the number of buyers and sellers are numerous, and almost unlimited. In fact the form of
perfectly competitive market is very difficult to find. In a perfectly competitive market both
producers and consumers can not affect the price because each party knows the market
conditions. Prices that occur in the market is the result of an agreement between consumers
and producers
7
Bucknall kevin, An Introduction to Economics, (ebook)p.43

6
.

The characteristics of perfect competition market are as follows:

a) There are many sellers and buyers in the market.

b) The traded products are homogeneous (all the same).
c) Producers and consumers are free to get in and out of the market. This is because both
producers and consumers are only a small part of the market.
d) Consumers have a good knowledge of the market.
e) Factors of production can move freely because of the large number of producers in the
market.
2. . Imperfect Competition.

The imperfect market competition is a market where the number of producers and
consumers in the market is not balanced. In a competition market is not complete, the market
can be controlled by one producer, several producers, one consumer, or some consumer. The
forms of imperfect competition markets include the monopoly market, the oligopoly market,
and the monopolistic market.

a. Monopoly Market.

In monopoly market, one group controls the market. Suppliers can raise prices
without losing business.

The characteristics of Monopoly Market are:

a) Single seller.
b) No substitutes.
c) No entry.
d) Complete control over price.

b. Oligopoly Market.

In oligopoly market, there a few businesses in competition. Price wars are common
place.

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The characteristics of oligopoly market are:

a) Domination of a few sellers.

b) Barriers to entry.
c) Identical or slightly different products.
d) Some control of price.

c. Monopolistic Market.

In monopolistic market,

The characteristics of monopolistic market are:

a) Numerous sellers.
b) Easy entry.
c) Different products
d) Competition.
e) Some control of price.

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 CHAPTER III

CONCLUSION

The law of demand in the economy to mention the higher prices of goods, the less
quantity of goods demanded and conversely the lower the price of goods more and more
quantity of goods demanded. It seems that demand legal reasoning does not apply during the
month of Ramadan and Idul Fitri. Although prices skyrocketing, people are still eager to meet
his needs, especially the need for food.

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 REFERENCES

T. Gilarso SJ ; Pengantar ilmu Ekonomi Mikro. Penerbit Kanisius. Yogyakarta. 2003

Rahardja dan Manurung; Uang, perbankan dan ekonmi moneter. Fakultas Ekonomi UI.
Jakarta. 2004.

N. Gregory Mankiw; Principle of Microeconomics. jilid 1. edisi terjemahan. Erlangga.

Jakarta. 1998.
Syafi’i Antonio; Bank Syariah Dari Teori Ke Praktek. Gema Insani Press. Jakarta. 2001.

Stiglitz Joseph E & Walsh E. Carl, Economics W. W. Norton & Company, Inc., 500 Fifth
Avenue, New York, N. Y. 10110 :2005

Bucknall kevin, An Introduction to Economics, ebook

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