Complilation powepoint final

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  • 2. Introduction The following slides are the compilation of different slides from five different authors about the topic Demand and Supply. Authors : Ankit Bist Ujjwal 'Shanu‘ KASBIT Jiten Sharma NepDevWiki
  • 3. Topics: • Demand Define demand Law of demand Demand Schedule (elasticity of demand) Factors Affecting Demand curve (graphs) Markets equilibrium • Supply Define supply Law of supply Supply Schedule Factors Affecting Supply curve (graphs) Elasticity
  • 4. Demand Definition: The amount of a particular economic good or service that a consumer or group of consumers will want to purchase at a given price •Law of demand :States that a quantity of a good demanded during a given period relates inversely to its price, other things constant. •Price increases  Quantity Demanded decreases •Price decreases  Quantity demanded increases •Creates a downward sloping demand curve
  • 5. Demand schedule Demand Schedule Demand Curve Price [Rs per unit] Quantity demanded of X [kg. per month] a b c d e f 0.50 1.00 1.50 2.00 2.50 3.00 7.0 5.0 3. 5 2.5 1.5 1.0 3.00 f e 2.50 d Price of X Point 2.00 c 1.50 b 1.00 a 0.50 1 2 3 4 5 6 7 Quantity of X
  • 6. Elasticity of demand
  • 7. Factors effecting demand curve (movements and shifts along the curve) 1. Change in taste 2. Prices of other goods • Substitute • Complement 3. Income 4. Government rules and regulation
  • 8. 1.Changes in taste (shift in demand) • Consumers prefer platform shoes. • At $50, demand increases from 100 to 200. $50 D 100 200 D2
  • 9. 2.2.1Change in Prices of other goods (substitute) Increase in demand E.g.: Price of coke increases, demand of Pepsi increases Price Suppose the two cold drinks coke and Pepsi are substitutes D D 2 Quantity (Pepsi)
  • 10. 2.2.Change in Prices of other goods (Complements)Decrease in demand (they work together) E.g.: Price of tea increases, demand of sugar decreases Price Suppose tea and sugar are complements D1 D Quantity (sugar)
  • 11. 3.Change in Income The increase in income increases the quantity of goods demanded (demand increases shifts rightward) Price Increase in demand D2 D Quantity X
  • 12. 4.Change in Government Regulation (Sales tax) Price Decrease in demand D1 Quantity X
  • 13. SUPPLY: • Definition: The total amount of a good or service available for purchase; along with demand, one of the two key determinants of price. Law of supply: If demand is held constant, an increase in supply leads to a decreased price, while a decrease in supply leads to an increased price.
  • 14. Supply Schedule The increase in price increases the quantity supplied, e.g. price increase from 2 to 4 an quantity increases from 3 to .
  • 15. Factors that effect the Supply curve • • • • • Technology Changes in prices of Alternative Goods Changes in Relevant Resources Changes in the Number of Producers Changes in Producers Expectations
  • 16. 1.Changes in technology • Technology is the economy’s stock of knowledge about how to combine resources efficiently Improvements in technology Causes an increase in supply More of the product is available at all prices
  • 17. Changes in prices of Alternative Goods • Alternative goods • Other goods that use some or all of the same resources as the good in question Price S1 $6 • Beef and leather. • If the price of beef decreases, producers will supply less beef thus decreasing the supply of leather. 300 Q Leather 400 Above is the market for the supply of leather
  • 18. Changes in Relevant Resources • Resources that are employed in the production of the good in question • Increase in price of resources $9 S1 S2 500 600 • Results in decrease in supply • Less of the good is available at all prices
  • 19. Changes in the Number of Producers • As the number of producers change so does the supply of the product • A decrease in the number of producers will lead to a decrease in supply
  • 20. Changes in Producers Expectations • Expectation of future prices of resources or their own product can cause producers to change what they offer at each individual price
  • 21. Demand, Supply & Market equilibrium
  • 22. • Market Market Equilibrium • Includes all the arrangements used to buy and sell • Reduce transaction costs • The place where buyers and sellers meet to determine price and quantity
  • 23. Equilibrium P • At specific price where: Quantity demanded S Equals Quantity Supplied $5 Equilibrium D Q 150
  • 24. EQUILIBRIUM SHORTAGE VS SURPLUS 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.
  • 25. EQUILIBRIUM- shortage P Price of quantity 5 S 4 3 2 Shortage 1 2 4 6 8 Q 10 12 14 16 Quantity
  • 26. EQUILIBRIUM- surplus Extent to which generation of goods, services, and resources (such as capital) exceeds their consumption is called surplus. P 5 Surplus S 4 3 2 D 1 2 4 6 8 Q 10 12 14 16 Quantity
  • 27. Summary of demand, supply &equilibrium Change in Change in Effect on Effect on Supply Demand Equilibrium Equilibrium Price Quantity Increase Decrease Decrease Indeterminate Decrease Increase Increase Indeterminate Increase Increase Indeterminate Increase Decrease Decrease Indeterminate Decrease
  • 28. References • Ankit Bist (2011) DEMAND AND SUPPLY at • Ujjwal Shanu (2013) DEMAND AND SUPPLY at • KASBIT (2011) Basic elements of supply and demand, at • Jiten Sharma (2012) demand and supply at • NepDevWiki (2012) 05 price elasticity of demand and supply at