demand and supply

5 4 3 2 1 10 20 35 55 80 A schedule or a curve that shows the various amounts of a product that consumers are willing and able to purchase at each of a series of possible prices. What is Demand? Buyers determine demand P Q D

P Q o 5 4 3 2 1 5 4 3 2 1 10 20 35 55 80 Price of quantity Quantity Plot the Points 10 20 30 40 50 60 70 80 Graphing Demand P Q D

55 Q o 5 4 3 2 1 5 4 3 2 1 10 20 35 55 80 Quantity Plot the Points 10 20 30 40 50 60 70 80 Price of quantity Graphing Demand P P Q D

35 P Q o 5 4 3 2 1 5 4 3 2 1 10 20 35 55 80 Quantity Plot the Points 10 20 30 40 50 60 70 80 Price of quantity Graphing Demand P Q D

P Q o 5 4 3 2 1 5 4 3 2 1 10 20 35 55 80 Price of quantity Quantity Plot the Points 10 20 30 40 50 60 70 80 Price of quantity Graphing Demand P Q D

P Q o 5 4 3 2 1 5 4 3 2 1 10 20 35 55 80 Price of quantity Quantity Plot the Points 10 20 30 40 50 60 70 80 Graphing Demand P Q D

P Q o 5 4 3 2 1 5 4 3 2 1 10 20 35 55 80 D Price of quantity Quantity Connect the Points 10 20 30 40 50 60 70 80 Graphing Demand P Q D

As Price Falls…
… Quantity Demanded Rises
As Price Rises…
… Quantity Demanded Falls
An inverse relationship exists between price and quantity demanded Law of Demand

P Q o 5 4 3 2 1 5 4 3 2 1 10 20 35 55 80 D Quantity 10 20 30 40 50 60 70 80 Price of quantity Graphing Demand What if Demand Increases? P Q D

P Q o 5 4 3 2 1 5 4 3 2 1 D Price of quantity Quantity 10 20 30 40 50 60 70 80 D’ Increase in Demand Increase In quantity demanded (extension in demand) 10 20 35 55 80 30 40 60 80 + Graphing Demand P 2 P 1 P Q D

P Q o 5 4 3 2 1 5 4 3 2 1 10 20 35 55 80 D Price of qauntity Quantity 10 20 30 40 50 60 70 80 What if Demand Decreases? Graphing Demand P Q D

P Q o 5 4 3 2 1 5 4 3 2 1 10 20 35 55 80 D Price of quantity Quantity 10 20 30 40 50 60 70 80 -- 10 20 40 60 D’ Decrease in Demand Decrease in quantity demanded (contraction in demand) Graphing Demand P 1 P 2 P Q D

Product’s own price
Income of Buyers
Prices of Related Goods
Tastes
Expectations
Number of Buyers
Determinants of demand

Determinants of demand VARIABLE A CHANGE IN THIS VARIABLE PRICE Representation a movement along the demand curve INCOME Shift the demand curve TASTES Shift the demand curve PRICE OF OTHER GOODS Shift the demand curve NUMBER OF BUYERS Shift the demand curve EXPECTATION Shifts the demand curve

1 2 3 4 5 Supply is a schedule or a curve showing the amounts of a product that producers are willing and able to make available for sale at each of a series of possible prices. 5 20 35 50 60 What is Supply? P Q S

5 P Q o 5 4 3 2 1 10 20 30 40 50 60 70 80 5 4 3 2 1 60 50 35 20 5 Price of a quantity Quantity Plot the Points Graphing Supply? P Q S

P Q o 5 4 3 2 1 10 20 30 40 50 60 70 80 5 4 3 2 1 60 50 35 20 5 Quantity Price of a quantity Graphing Supply? P Q S

35 P Q o 5 4 3 2 1 10 20 30 40 50 60 70 80 5 4 3 2 1 60 50 35 20 5 Quantity Price of a quantity Graphing Supply? P Q S

P Q o 5 4 3 2 1 10 20 30 40 50 60 70 80 5 4 3 2 1 60 50 35 20 5 Quantity Price of a quantity Graphing Supply? P Q S

S P Q o 5 4 3 2 1 10 20 30 40 50 60 70 80 5 4 3 2 1 60 50 35 20 5 Quantity Connect the Points Price of a quantity Graphing Supply? P Q S

As Price Rises…
… Quantity Supplied Rises
As Price Falls…
… Quantity Supplied Falls
A direct relationship exists between price and quantity supplied Law of Supply?

Price of quantity S P Q o 5 4 3 2 1 10 20 30 40 50 60 70 80 $5 4 3 2 1 60 50 35 20 5 Quantity What if Supply Increases? Law of Supply? P Q S

S P Q o 5 4 3 2 1 10 20 30 40 50 60 70 80 Price of quantity Quantity 5 4 3 2 1 60 50 35 20 5 80 70 60 45 30 S’ Increase in Supply Increase in Quantity Supplied Law of Supply? P 1 P 2 P Q S

S P Q o 5 4 3 2 1 10 20 30 40 50 60 70 80 $5 4 3 2 1 60 50 35 20 5 Quantity What if Supply Decreases? Price of a quantity Law of Supply? P Q S

S P Q o 5 4 3 2 1 10 20 30 40 50 60 70 80 5 4 3 2 1 60 50 35 20 5 Quantity S’ 45 30 20 0 -- Decrease in Supply Decrease in Quantity Supplied Price of a quantity Law of Supply? P 2 P 1 P Q S

Prices of the good / service
Technology
Taxes & Subsidies
Prices of Other Goods
Number of Sellers
Determinants of Supply?

Determinants of Supply? VARIABLE A CHANGE IN THIS VARIABLE PRICE Representation a movement along the supply curve TECHNOLOGY Shift the supply curve TASTES & SUBSIDIES Shift the supply curve PRICE OF OTHER GOODS Shift the supply curve NUMBER OF SELLERS Shift the supply curve EXPECTATION Shifts the supply curve

EQUILIBRIUM Equilibrium refers to a situation in which the price has reached the level where quantity supplied equals quantity demanded. quantity supplied = quantity demanded (q s = q d )

5 4 3 2 1 10 20 35 55 80 5 4 3 2 1 60 50 35 20 5 200 B U Y E R S MARKET DEMAND 2,000 4,000 7,000 11,000 16,000 200 S E L L E R S 12,000 10,000 7,000 4,000 1,000 MARKET SUPPLY EQUILIBRIUM x x EQUILIBRIUM P Q D P Q S

7 S Q o 5 4 3 2 1 2 4 6 8 10 12 14 16 5 4 3 2 1 2,000 4,000 7,000 11,000 16,000 5 4 3 2 1 12,000 10,000 7,000 4,000 1,000 D Quantity EQUILIBRIUM P Q D P Q S

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 .
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.
EQUILIBRIUM

7 S P Q o 5 4 3 2 1 2 4 6 8 10 12 14 16 5 4 3 2 1 2,000 4,000 7,000 11,000 16,000 5 4 3 2 1 12,000 10,000 7,000 4,000 1,000 D Price of quantity Quantity Surplus At a “P4” price more is being supplied than demanded EQUILIBRIUM- surplus P Q D P Q S

11 7 S P Q o 5 4 3 2 1 2 4 6 8 10 12 14 16 5 4 3 2 1 2,000 4,000 7,000 11,000 16,000 5 4 3 2 1 12,000 10,000 7,000 4,000 1,000 D Price of quantity Quantity At a “P2” price more is being demanded than supplied Shortage EQUILIBRIUM- shortage P Q D P Q S

QUESTIONS ?

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demand and supply

by Ankit Bist on Dec 18, 2011

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demand and supply Presentation Transcript