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Demand
Supply and demand are the two words
Demand Analysis
Determinant of Demand
DEMAND
Law of Demand
The law of demand states that, other things
equal, the quantity demanded of a good
falls when the price of the good rises.
Exception of the Law of Demand
Giffen Goods
Demand Schedule and Demand Curve
The demand schedule is a table that shows
the relationship between the price of the
good and the quantity demanded.
Catherines Demand
Schedule
Demand Curve
The demand curve is a graph of the
relationship between the price of a good
and the quantity demanded
2.00
1.50
1.00
0.50
0 1 2 3 4 5 6 7 8 9 10 11 12 Quantity of
Ice-Cream Cones
2. ...increases quantity
of cones demanded.
Catherines
Demand
Price of IceCream
Cone
Nicholass
Demand
Price of IceCream
Cone
2.00
2.00
1.00
1.00
1.00
Quantity of Ice-Cream
Cones
Market
Demand
Price of IceCream
Cone
2.00
Quantity of Ice-Cream
Cones
13
Quantity of Ice-Cream
Cones
Changes in Quantity
Demanded
A tax on sellers of
Price of IceCream
Cones
$2.0
0
ice-cream cones
raises the price of
ice-cream cones and
results in a
movement along
the demand curve.
A
1.00
D
0
Change in Demand
A shift in the demand curve, either to the
left or right.
Caused by any change that alters the
quantity demanded at every price.
Decrease
in demand
Demand curve,D3
0
Demand
curve, D1
Demand
curve, D2
Quantity of
Ice-Cream Cones
Consumer Income
As income increases the demand for
a normal good will increase.
As income increases the demand for
an inferior good will decrease.
$3.0
0
2.5
0
2.0
0
1.5
0
1.0
0
0.5
0
An increase
in income...
Increase
in demand
D1
0 1
2 3 4 5 6 7 8 9 10 11 12
D2
Quantity
of IceCream
Cones
$3.0
0
2.5
0
2.0
0
1.5
0
1.0
0
0.5
0
An increase
in income...
Decrease
in demand
D2
0 1
D1
2 3 4 5 6 7 8 9 10 11 12
Quantity
of IceCream
Cones
b. Future Prices
This equation states that the number of new domestic automobiles demanded
during a given year (in millions), Q, is a linear function of the average price of
new domestic cars (in $), P; the average price for new import cars (in $), PI;
If
all
other
determinants
held
constant ,the relationship between
price and quantity demanded is
Q= a-bP
Law of Demand
The law of demand states that, other things equal, the quantity
demanded of a good falls when the price of the good rises.
Exceptions of Law of
Demand
Future Prices
Prestigious goods
Giffen Goods
SUPPLY
Quantity supplied is the amount of a good that sellers are
willing and able to sell at a given price, per unit of time.
Determinants of supply
Price of the Product
Price of the Related Product
Input Price
Government Policies
Number of Sellers
Technology
Climate
Strike, Lock-out etc
Law of Supply
The law of supply states that, other things equal, the
quantity supplied of a good rises when the price of
the good rises.
The Relationship between Price and Quantity Supplied
can be explained by Supply Schedule and Supply Curve
The supply schedule is a table that shows the relationship
between the price of the good and the quantity
supplied.
2.50
1. An
increase
in price... 2.00
1.50
1.00
0.50
0
1 2
9 10 11 12Quantity of
Ice-Cream Cones
2. ...
increases quantity of cones supplied.
S
C
$3.0
0
1.00
A rise in the
price of ice
cream cones
results in a
movement
along the
supply curve.
Quantity
of IceCream
Cones
Supply curve,S3
Decrease
in supply
Supply
curve, S1
Supply
curve, S2
Increase
in supply
Quantity of
Ice-Cream Cones
Input prices
Technology
Expectations
Number of sellers
the
price has reached the level where quantity
supplied equals quantity demanded.
Equilibrium Price
The price that balances quantity supplied and
quantity demanded.
On a graph, it is the price at which the supply
and demand curves intersect.
Equilibrium Quantity
The quantity supplied and the quantity
demanded at the equilibrium price.
On a graph it is the quantity at which the
supply and demand curves intersect
Supply
Schedule
$2.00
Supply
Equilibrium
Equilibrium price
Equilibrium
quantity
0
Demand
8 9 10 11 12 13
Quantity of Ice-Cream Cones
Equilibrium
Surplus
When price > equilibrium price, then
quantity supplied > quantity demanded.
There is excess supply or a surplus.
Suppliers will lower the price to increase
sales, thereby moving toward equilibrium.
Price of
Ice-Cream
Cone
Supply
Surplus
$2.50
2.00
Demand
4
Quantity
demanded
10
Quantity of
Quantity
Ice-Cream
supplied
Cones
Equilibrium
Shortage
When price < equilibrium price, then
quantity demanded > the quantity
supplied.
There is excess demand or a shortage.
Suppliers will raise the price due to too
many buyers chasing too few goods, thereby
moving toward equilibrium.
Price of
Ice-Cream
Cone
Supply
$2.00
1.50
Shortage
Demand
4
Quantity
supplied
10
Quantity of
Quantity
Ice-Cream
demanded
Cones
Equilibrium
Law of supply and demand
The claim that the price of any good
adjusts to bring the quantity supplied
and the quantity demanded for that
good into balance.