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Mic 2 Mic 2 Presentation Transcript

  • Microeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 2– 1
  • CHAPTER 2 Demand and Supply Microeconomics All Rights Reserved © Oxford University Press Malaysia, 2008 2– 2
  • DEFINITION OF DEMAND Demand is defined as the ability and willingness to buy specific quantities of goods in a given period of time at a particular price, ceteris paribus.Microeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 2– 3
  • LAW OF DEMAND Law of demand states that the higher the price of a good, the lower the quantity demanded for that good and lower the price, quantity demanded is higher, ceteris paribus. P ↑ QDD ↓ P ↓ QDD ↑ NEGATIVE RELATIONSHIPMicroeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 2– 4
  • DEMAND SCHEDULE AND DEMAND CURVE Demand Schedule Demand Curve Price Quantity 12 D 9.0 2 10 8.5 4 8 6 8.0 6 4 DD 7.5 8 2 D 7.0 10 0 2 4 6 8 10Microeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 2– 5
  • INDIVIDUAL AND MARKET DEMAND INDIVIDUAL DEMAND The relationship between the quantity of a good demanded by a single individual and its price. MARKET DEMAND The relationship between the total quantity of a good demanded by adding all the quantities demanded by all consumers in the market and its price.Microeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 2– 6
  • CHANGES IN DEMAND AND QUANTITY DEMANDED CHANGE IN QUANTITY DEMANDED CHANGE IN DEMAND Price Price DD1 DD DD0 Quantity Quantity  Movement along the demand curve  Price changes and other factors are constant  Shift in the demand curve  Upward movement: Decrease in quantity  Occurs when changes in other factors and demanded (contraction) price remains constant  Downward movement: Increase in quantity  Increase in demand (DD0  DD1 ) demanded (expansion)  Decrease in demand (DD1  DD0 )Microeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 2– 7
  • THE DETERMINANTS OF DEMAND Consumers’ Consumers’ Income Income Tastes and Tastes and Fashions Fashions Price of Price ofRelated GoodsRelated Goods Population or Population or Number of Number of Buyers Buyers Festive Festive Seasons and Seasons and Climate Climate Expectation Expectation Advertisement AdvertisementMicroeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 2– 8
  • EXCEPTIONAL DEMAND Exceptional demand is against the Law of Demand where as price increases, demand will also increase and vice versa GIFFEN GOODS STATUS SYMBOL GODS SPECULATION EMERGENCIESMicroeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 2– 9
  • INTERRELATED DEMAND The demand for a good is also affected by the price of its substitute or complementary goods.Cross demand can be divided into: joint demand and competitive demand. Derived demand is the demand for a good which is derived from other goods.Microeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 2– 10
  • DEFINITION OF SUPPLY Supply is defined as the ability and willingness to sell or produce a particular product and services in a given period of time at particular price, ceteris paribus.Microeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 2– 11
  • LAW OF SUPPLY Law of supply states that the higher the price of a good, the greater is the quantity supplied for that good and lower the price, quantity supplied is lower, ceteris paribus. P ↑ Qss↓ P ↓ Qss ↑ POSITIVE RELATIONSHIPMicroeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 2– 12
  • SUPPLY SCHEDULE AND SUPPLY CURVE Supply Schedule SupplyCurve Price Quantity 12 9.0 10 10 S 8.5 8 8 6 8.0 6 4 SS 7.5 4 2 S 7.0 2 0 1 2 3 4 5Microeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 2– 13
  • INDIVIDUAL AND MARKET SUPPLY INDIVIDUAL SUPPLY The relationship between quantity of a product supplied by a single seller and its price. MARKET SUPPLYThe relationship between total quantity of a product supplied by adding all the quantities supplied by all sellers in the market and its price.Microeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 2– 14
  • CHANGES IN QUANTITY SUPPLIED AND CHANGE IN SUPPLY CHANGE IN QUANTITY SUPPLIED CHANGE IN SUPPLY Price Price SS0 SS SS1 Quantity Quantity  Movement along the supply curve Shift in the supply curve  Price changes and other factors are constant Occurs when changes in other factors  Downward movement: Decrease in quantity and price remains constant supplied (contraction) Increase in supply (SS0  SS1 )  Upward movement: Increase in quantity Decrease in supply (SS1  SS0 ) supplied (expansion)Microeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 2– 15
  • EXCEPTIONAL SUPPLY Exceptional supply is against the Law of Supply where as price increases, the quantity supplied decreases and vice versa Wage Rate 20 Income Effect (Exceptional Supply Curve) 15 10 Substitution Effect 5 Labour 0 1 2 3 4 5 6Microeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 2– 16
  • THE DETERMINANTS OF SUPPLY Cost of Cost of Price of Related Price of Related Production Production Goods Goods Government Government Policies Policies Expectation Expectation Number of Number of Technological Technological Sellers Sellers Advancement AdvancementMicroeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 2– 17