B.E MAZIBUKO 201281434

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Brief discussion of Demand and Supply

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B.E MAZIBUKO 201281434

  1. 1. B.E MAZIBUKO 201281434 PROFESSIONAL STUDIES 3A
  2. 2. DEMAND & SUPPLY • Demand • Supply • Market Equilibrium • Examples • Price ceiling/floor
  3. 3. DEMAND • behavior of buyers • relationship between • quantity demanded of a good • price • holding other factors constant
  4. 4. DEMAND • Behaviour of buyers • Relationship between • Quantity demanded of a good • Price • Holding other factors constant Demand and its Determinants: • A General Definition: • Demand is the quantity of a good or resource that buyers (or demanders) are willing and able to buy under a given set of conditions over a given period of time. Conditions: price, income, taste, prices of related goods, expected prices, number of buyers, etc.
  5. 5. DEMAND Quantity demanded is the amount of a good that buyers are willing and able to purchase.
  6. 6. DEMAND CURVE Price of Goods $3.00 2.50 • The demand curve is a graph illustrating how much of a given product a household would be willing to buy at different prices. P ric e $ 0 .0 0 0 .5 0 1 .0 0 1 .5 0 2 .0 0 2 .5 0 3 .0 0 2.00 1.50 1.00 Q u a n tity 12 10 8 6 4 2 0 0.50 0 1 2 3 4 5 6 7 8 9 10 11 12 Qd
  7. 7. QUANTITY DEMANDED (QD) • amount of good or service • unit of measure • per unit of time • “2 bottles of water per day”
  8. 8. LAW OF DEMAND If the price of a good then the Qd holding other things constant!!!
  9. 9. WHY? • higher price makes you feel poorer • income effect • higher price on one good, substitute other goods. • substitution effect
  10. 10.  individual demand  demand curve for 1 buyer  market demand**  demand curve for all buyers  add up individual Qd for each price
  11. 11. CHANGE IN QUANTITY DEMANDED VERSUS CHANGE IN DEMAND Change in Quantity Demanded Movement along the demand curve. Caused by a change in the price of product. the
  12. 12. CHANGES IN QUANTITY DEMANDED Price of Cigarettes per Pack Rs.4. 00 A tax that raises the price of cigarettes results in a movement along the demand curve. C A 2.00 D1 0 12 20 Number of Cigarettes Smoked per Day
  13. 13. CHANGE IN QUANTITY DEMANDED VERSUS CHANGE IN DEMAND Change in Demand A shift in the demand curve, either right. Caused by a change in a determinant other than the price. to the left or
  14. 14. CHANGES IN DEMAND Price of Ice-Cream Cone Increase in demand Decrease in demand D2 0 D3 D1 Quantity of Ice-Cream Cones
  15. 15. CHANGE IN QUANTITY DEMANDED VERSUS CHANGE IN DEMAND Variables that Affect Quantity Demanded A Change in This Variable . . . Price Represents a movement along the demand curve Income Shifts the demand curve Prices of related goods Shifts the demand curve Tastes Shifts the demand curve Expectations Shifts the demand curve Number of buyers Shifts the demand curve
  16. 16. TWO SIMPLE RULES FOR MOVEMENTS VS. SHIFTS • Rule One • When an independent variable changes and that variable does not appear on the graph, the curve on the graph will shift. • Rule Two • When an independent variable does appear on the graph, the curve on the graph will not shift, instead a movement along the existing curve will occur.
  17. 17. CONSUMER INCOME Price of Ice-Cream Cone NORMAL GOOD Rs.3.00 An increase in income... 2.50 Increase in demand 2.00 1.50 1.00 0.50 D1 0 1 2 3 4 5 6 7 8 9 10 11 12 D2 Quantity of Ice-Cream Cones
  18. 18. CONSUMER INCOME Price of Ice-Cream Cone INFERIOR GOOD Rs.3.00 An increase in income... 2.50 2.00 Decrease in demand 1.50 1.00 0.50 D2 0 1 D1 2 3 4 5 6 7 8 9 10 11 12 Quantity of Ice-Cream Cones
  19. 19. IMPORTANT!! • Change in demand -- occurs when other factors change -- shift to a new demand curve • change in demand • NOT caused by change in price of the good
  20. 20. SUPPLY • behavior of sellers • relationship between • quantity supplied of a good • price • holding other factors constant
  21. 21. SUPPLY Quantity supplied is the amount of a good that sellers are willing and able to sell.
  22. 22. SUPPLY CURVE The supply curve is the upwardsloping line relating price to quantity supplied.
  23. 23. Price of Ice-Cream Cone Rs.3. 00 2.50 2.00 1.50 1.00 SUPPLY CURVE Price 0.00 0.50 1.00 1.50 2.00 2.50 3.00 Quantity 0 0 1 2 3 4 5 0.50 0 1 2 3 4 5 6 7 8 9 10 11 12 Quantity of Ice-Cream Cones
  24. 24. LAW OF SUPPLY If the price of a good then the Qs holding other things constant!!!
  25. 25. WHY? • Holding costs constant • higher price means higher profit margin
  26. 26. SUPPLY SCHEDULE The supply schedule is a table that shows the relationship between the price of the good and the quantity supplied.
  27. 27. SUPPLY SCHEDULE Price = $/bottle Qs = bottles/day P $2.00 $1.50 Qs 3 2 $1.00 $.50 1 0
  28. 28. CHANGES IN SUPPLY • if other factors do change, • change in supply • shift to a new supply curve
  29. 29. CHANGE IN QUANTITY SUPPLIED VERSUS CHANGE IN SUPPLY Change in Quantity Supplied Movement along the supply curve. Caused by a change in the market price of the product.
  30. 30. CHANGE IN QUANTITY SUPPLIED Price of Ice-Cream Cone S C Rs.3. 00 A rise in the price of ice cream cones results in a movement along the supply curve. A 1.00 0 1 5 Quantity of Ice-Cream Cones
  31. 31. CHANGE IN QUANTITY SUPPLIED VERSUS CHANGE IN SUPPLY Change in Supply A shift in the supply curve, either to the left or right. Caused by a change in a determinant other than price.
  32. 32. CHANGE IN SUPPLY S3 Price of Ice-Cream Cone S1 S2 Decrease in Supply Increase in Supply 0 Quantity of Ice-Cream Cones
  33. 33. CHANGE IN QUANTITY SUPPLIED VERSUS CHANGE IN SUPPLY V ariables that A ffect Q uantity S upplied A C hange in This V ariable . . . P rice R epresents a m ovem ent along the supply curve Input prices S hifts the supply curve T echnology S hifts the supply curve E xpectations S hifts the supply curve N um ber of sellers S hifts the supply curve
  34. 34. MARKETS A market is a group of buyers and sellers of a particular good or service. The terms supply and demand refer to the behavior of people . . . as they interact with one another in
  35. 35. MARKETS  Buyers determine demand.  Sellers determine supply.
  36. 36. SUPPLY AND DEMAND TOGETHER Equilibrium Price The price that balances supply and demand. On a graph, it is the price at which the supply and demand curves intersect. Equilibrium Quantity The quantity that balances supply and demand. On a graph it is the quantity at which the supply and demand curves intersect.
  37. 37. SUPPLY AND DEMAND TOGETHER Demand Schedule Price Rs 0 0.50 1.00 1.50 2.00 2.50 3.00 Quantity 19 16 13 10 7 4 1 Supply Schedule Price Rs 0 0.50 1.00 1.50 2.00 2.50 3.00 Quantity 0 0 1 4 7 10 13 At Rs.2.00, the quantity demanded is equal to the quantity supplied!
  38. 38. EQUILIBRIUM OF SUPPLY AND DEMAND Price of Ice-Cream Cone Supply Rs.3. 00 2.50 Equilibrium 2.00 1.50 1.00 Demand 0.50 0 1 2 3 4 5 6 7 8 9 10 11 12 Quantity of Ice-Cream Cones
  39. 39. EXCESS SUPPLY Price of Ice-Cream Cone Surplus Rs.3. 00 2.50 Supply 2.00 1.50 1.00 Demand 0.50 0 1 2 3 4 5 6 7 8 9 10 11 12 Quantity of Ice-Cream Cones
  40. 40. SURPLUS WHEN THE PRICE IS ABOVE THE EQUILIBRIUM PRICE, THE QUANTITY SUPPLIED EXCEEDS THE QUANTITY DEMANDED. THERE IS EXCESS SUPPLY OR A SURPLUS. SUPPLIERS WILL LOWER THE PRICE TO INCREASE SALES, THEREBY MOVING TOWARD EQUILIBRIUM.
  41. 41. EXCESS DEMAND Price of Ice-Cream Cone Supply Rs.2.00 Rs.1.50 Shortage 0 1 2 3 4 5 6 7 Demand 8 9 10 11 12 13 Quantity of Ice-Cream Cones
  42. 42. SHORTAGE WHEN THE PRICE IS BELOW THE EQUILIBRIUM PRICE, THE QUANTITY DEMANDED EXCEEDS 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.
  43. 43. THREE STEPS TO ANALYZING CHANGES IN EQUILIBRIUM Decide whether the event shifts the supply or demand curve (or both). Decide whether the curve(s) shift(s) to the left or to the right. Examine how the shift affects equilibrium price and quantity.
  44. 44. HOW AN INCREASE IN DEMAND AFFECTS THE EQUILIBRIUM Price of Ice-Cream Cone 1. Hot weather increases the demand for ice cream... Supply Rs.2.50 New equilibrium 2.00 2. ...resulting in a higher price... Initial equilibrium D2 D1 0 3. ...and a higher quantity sold. 7 10 Quantity of Ice-Cream Cones
  45. 45. HOW A DECREASE IN SUPPLY AFFECTS THE EQUILIBRIUM Price of Ice-Cream Cone S2 1. Shortage of milk reduces the supply of ice cream... S1 New equilibrium Rs.2.50 2.00 Initial equilibrium 2. ...resulting in a higher price... Demand 0 1 2 3 4 7 8 9 10 11 12 13 3. ...and a lower quantity sold. Quantity of Ice-Cream Cones
  46. 46. REFERENCES • Amin Hanif, Chief Executive Officer at The federation of lazy jobless people (FLJP) on Nov 03, 2011 • itutor on Aug 28, 2013 • MBA CORNER By Babasab Patil (Karrisatte) on Feb 24, 2012
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