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SUPPLY &

DEMAND
Presentation by: Hareem Rehan
Ayesha Zafar

Contents

Market
Definition's
Laws
How each are plotted on graphs
Price mechanism
Equilibrium
A newly issued commodity
elasticity

NOTE:
Because we are studying the
concept of supply and demand
according to the market
requirement , we will consider
QUANTITY demanded by
consumers/buyers and
QUANTITY supplied by
producers/sellers.

What is a Market?
Any medium where buying and selling of
anything ,be it a commodity or share,
takes place. This may be a street market
or even online shopping websites or stock
exchanges.
Consists of consumers/buyers and
producers/sellers.
In a goods market, money is the medium
of exchange and prices are usually
determined by the market forces of
supply and demand.

Buye
rs

Mark
et
Selle
rs

What is Demand?
The willingness as well as the
presence of ability to buy a
commodity is DEMAND.

willingness

abilit
y

DEMAND

Quantity
Demanded
The quantity of a certain
commodity that buyers
were willing and able to buy
at a certain price is the
QUANTITY DEMANDED.
This type of demand is set
by consumers.
Consumers are the
demanding force in a
market.

The Law of
According to human phycology consumers
Demand
buy more of a good when price decreases and
less when price increases as they are
concerned with SELF-GAIN.{ No factor
influences our decision other than price}

The LAW OF DEMAND hence states that

Consumers demand more quantity of a


commodity at a lower price and less of a
commodity at a higher price.

Increase
in price
means

reduced
demand
Reduction in
price means
increased
demand

DEMAND FOR PETROL


Price

Quantity
Demanded

$10

6 liters

$20

4 liters

$30

2 liters

The
demand
curve

Sloping
downwards.
Negative slope due
to negative relation.

Determinants of
DEMAND

There are certain factors other


than price of a commodity that
may influence the quantity
demanded. They may cause it
to increase or decrease
respectively.
Hence while drawing demand
curves certain considerations as
to what causes the quantity to
change should be essential.
These may influence our

Determinants of
demand

What is supply?
The willingness and ability combined of
a producer/seller to sell his commodity
is supply.
The ability
of a seller
to sell

The
willingness of
a seller to sell

SUPPLY

Quantity Supplied
The quantity of a certain
commodity
that sellers
were willing and able to buy
at a certain price is the
QUANTITY SUPPLIED.
This type of supply is set by
producers. Producers are
the supplying force in a
market.
Measured after a fixed

The Law of Supply


As we have discussed that humans are
motivated by self-gain, hence people who
supply their goods will sell more at an
increased price and less at a reduced price.
Keeping in mind that no other factor then
price influences their decision.

The LAW OF SUPPLY hence states


that
Producers will supply more of their
commodity at a higher price and less at a
lower price.

Supply increases
as price increases

Supply
decreases as
price
decreases

SUPPLY FOR PETROL


Price

Quantity
Supplied

$10

2 liters

$20

4 liters

$30

6 liters

The supply
curve

Sloping upwards.
Positive slope due
to negative relation.

Determinants of
There are certain factors other
than price of a commodity that
may influence the quantity
supplied. They may cause it to
increase or decrease
respectively.
Hence while drawing supply
curves certain considerations as
to what causes the quantity to
change should be essential.
These may influence our

SUPPLY

Determinants of
Supply

MOVEMENT along these


Curves:
The points A.B.C indicate a movement
along these curves. Occurs only when there
is a change in price.
Strictly follows the law of demand/supply
There are 2 kinds of movements:
a} extension : when the quantity
{demanded/supplied} increases due to
respective change in price.
b} contraction: when the quantity
{demanded/supplied} decreases due to
respective change in price.

MOVEMENTs IN
CURVES
Extension
causes a
decrease in
price.
Contraction
causes an
increase in
price.
Extension
causes an
increase in
price.
Contraction
causes a
decrease in

SHIFTS in these curves


When any factory other than price causes the
quantity demanded or the quantity supplied to
change there is a shift in the curve . A new
curve is drawn responding to the change.
There is said to be a rise or fall in the
quantity:

1. rise} when quantity increases,


curve moves to right.
2. fall} when quantity decreases,
curve moves to left.

1. Shift due to Rise


Demand curve:
The quantity demanded
per price increases due to
change in any factor other
than price.

Supply curve:
The quantity supplied per
price increases due to
change in any factor other
than price.

2. Shift due to Fall


Demand curve:
The quantity
demanded per price
decreases due to
change in any factor
other than price.

supply curve:
The quantity
supplied per price
decreases due to
change in any factor
other than price.

EQUILIBRIUM
Market equilibriumis
amarketstate where the
supply in themarketis
equal to the demand in
themarket.
Theequilibriumprice is
the price of a good or
service when the supply of
it is equal to the demand
for it in themarket. It is

Po = EQUILIBRIUM
QUANTITY
Qo = EQUILIBRIUM
QUANTUTY

DISEQUILIBRIU
A market situation
in
which
the
M
quantity supplied is unequal to
quantity demanded.

QUANTITY SUPPLIED

QUANTITY DEMANDED
THERE ARE 2 DISEQUILIBRIUM
SITUATIONS A SURPLUS OR A SHORTAGE.

Shortage can be defined as


excessive demand or lack of
supply.
Surplus can be defined as
excessive supply or lack of
demand.

THE PRICE
Price mechanism refers to
MECHANISM
the system where the forces
of demand and supply
determine the prices of
commodities and the
changes therein. It is the
buyers and sellers who
actually determine the price
of a commodity.
Many markets have used

ELASTICITY

In economics, elasticity refers


the degree to which individuals
(consumers/producers) change
their demand/amount supplied
in response to price or income
changes.
It in general can also be referred
to as the percentage change in
demand/supply to 1% change in
price.

CALCULATING PRICE
ELASTICITY
Price Elasticity if DEMAND/SUPPLY {pE} :
pE =

% CHANGE IN QUANTITY
% CHANGE IN PRICE

% CHANGE IN QUANTITY / PRICE=


Q2 Q1
Q1

100

Types of Elasticity
Perfectly inelastic
PE = 0
Inelastic Curve
PE < 1
Unitary Elastic Curve
PE = 1
Elastic Curve
PE > 1
Perfectly Inelastic Curve
PE = ~

THE
END

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