Supply andSupply and
DemandDemand
How MarketsHow Markets
Work?Work?
Faculty of Business and Economics, The IIPM, NewFacult...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
Demand and Supply AnalysisDemand and Supply Analysis
“You can...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
In this chapter you will…In this chapter you will…
Learn the...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
THE MARKET FORCES OF SUPPLYTHE MARKET FORCES OF SUPPLY
AND DE...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
MARKETS AND COMPETITIONMARKETS AND COMPETITION
• The terms su...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
Competitive MarketsCompetitive Markets
A Competitive Market i...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
Competition: Perfect orCompetition: Perfect or
OtherwiseOther...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
DEMANDDEMAND
• Quantity Demanded refers to
the amount (quanti...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
Determinants of DemandDeterminants of Demand
• What factors d...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
PricePrice
Law of Demand
– The law of demand states that,
oth...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
IncomeIncome
– As income increases, the
demand for a normal g...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
Prices of Related GoodsPrices of Related Goods
– Prices of Re...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
OthersOthers
– Tastes & preferences
– Expectations
– Re-salea...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
The Demand Schedule and theThe Demand Schedule and the
Demand...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
Table 4-1:Table 4-1: Catherine’s Demand Schedule
03.00
22.50
...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
Figure 4-1:: Catherine’s Demand Curve
Price of Ice-
Cream
Con...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
Market Demand ScheduleMarket Demand Schedule
• Market demand ...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
03.00
100.50
120.00
Catherine
Price of Ice-
cream Cone ($)
Ta...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
Price of
Ice-Cream
Cone
Quantity of
Ice-Cream
Cones
D3
D1
D2
...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
Table 4-3: The DeterminantsTable 4-3: The Determinants
of Qua...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
Shifts in the Demand Curve
versus Movements Along the
Demand ...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
Price of
Cigarette
s, per
Pack.
Number of
Cigarettes Smoked
p...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
Price of
Cigarette
s, per
Pack.
Number of
Cigarettes Smoked
p...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
SUPPLY
• Quantity Supplied refers to the
amount (quantity) of...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
Determinants of SupplyDeterminants of Supply
• What factors d...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
PricePrice
Law of Supply
– The law of supply states that,
oth...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
The Supply Schedule and theThe Supply Schedule and the
Supply...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
Table 4-4: Ben’s Supply Schedule
53.00
42.50
32.00
21.50
11.0...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
Price of
Ice-Cream
Cone
Quantity of
Ice-Cream
Cones
6 8 10 12...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
Market Supply ScheduleMarket Supply Schedule
• Market supply ...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
53.00
00.50
00.00
Ben
Price of Ice-
cream Cone ($)
Table 4-5:...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
Price of
Ice-Cream
Cone
Quantity of
Ice-Cream
Cones
S3
S2
S1
...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
Table 4-6: The Determinants ofTable 4-6: The Determinants of
...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
SUPPLY AND DEMAND TOGETHERSUPPLY AND DEMAND TOGETHER
• Equili...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
EquilibriumEquilibrium
• Equilibrium Price
– The price that b...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
At $2.00, the quantity
demanded is equal to the
quantity supp...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
Equilibrium
price
Demand
Supply
$2.00
6 8 100
Equilibri
um
Eq...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
EquilibriumEquilibrium
• Surplus
– When price > equilibrium p...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
Demand
Supply
$2.00
6 8 100 Quantity of
Ice-Cream
Cones
Price...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
Demand
Supply
$2.00
6 8 100 Quantity of
Ice-Cream Cone
Price ...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
Three Steps To AnalyzingThree Steps To Analyzing
Changes in E...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
D1
Supply
$2.00
6 100 Quantity of
Ice-Cream Cone
Price of
Ice...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
Demand
S1
$2.00
100 Quantity of
Ice-Cream
Cones
Price of
Ice-...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
D1
S1
0 Quantity of
Ice-Cream Cone
Price of
Ice-Cream
Cone
Q1...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
D1
S1
0 Quantity of
Ice-Cream Cone
Price of
Ice-Cream
Cone
Q1...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
Table 4-8: What Happens to PriceTable 4-8: What Happens to Pr...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
ConcludingConcluding Remarks…Remarks…
• Market economies harn...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
SummarySummary
• Economists use the model of
supply and deman...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
SummarySummary
• The demand curve shows how the quantity
of a...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
SummarySummary
The supply curve shows how the quantity
of a g...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
SummarySummary
• Market equilibrium is
determined by the
inte...
Faculty of Business and Economics (FBE), The IIPM, New Delhi
AssignmentAssignment
Upcoming SlideShare
Loading in...5
×

Demand and-supply

991
-1

Published on

Published in: Technology, Economy & Finance
0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total Views
991
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
60
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide

Demand and-supply

  1. 1. Supply andSupply and DemandDemand How MarketsHow Markets Work?Work? Faculty of Business and Economics, The IIPM, NewFaculty of Business and Economics, The IIPM, New DelhiDelhi
  2. 2. Faculty of Business and Economics (FBE), The IIPM, New Delhi Demand and Supply AnalysisDemand and Supply Analysis “You cannot teach a parrot to be an economist simply by teaching it to say ‘supply’ and ‘demand’.” ---Anonymous “You cannot teach a parrot to be an economist simply by teaching it to say ‘supply’ and ‘demand’.” ---Anonymous
  3. 3. Faculty of Business and Economics (FBE), The IIPM, New Delhi In this chapter you will…In this chapter you will… Learn the nature of a ‘competitiveLearn the nature of a ‘competitive market’.market’. Examine what determines the demandExamine what determines the demand for a good in a competitive market.for a good in a competitive market. Examine what determines the supplyExamine what determines the supply of a good in a competitive market.of a good in a competitive market. See how supply and demand togetherSee how supply and demand together set the price of a good and theset the price of a good and the quantity sold.quantity sold. Consider the key role of prices inConsider the key role of prices in allocating scarce resources.allocating scarce resources.
  4. 4. Faculty of Business and Economics (FBE), The IIPM, New Delhi THE MARKET FORCES OF SUPPLYTHE MARKET FORCES OF SUPPLY AND DEMANDAND DEMAND  Supply and Demand are theSupply and Demand are the two words that economists usetwo words that economists use most often.most often.  Supply and Demand are theSupply and Demand are the forces that make marketforces that make market economies work!economies work!  Modern microeconomics isModern microeconomics is about supply, demand, andabout supply, demand, and market equilibrium.market equilibrium.
  5. 5. Faculty of Business and Economics (FBE), The IIPM, New Delhi MARKETS AND COMPETITIONMARKETS AND COMPETITION • The terms supply and demandThe terms supply and demand refer to the behaviour ofrefer to the behaviour of people......as they interactpeople......as they interact with one another in markets.with one another in markets. • A market is a group ofA market is a group of buyers and sellers of abuyers and sellers of a particular good or service.particular good or service. • Buyers determine demand...Buyers determine demand... • Sellers determine supply…Sellers determine supply…
  6. 6. Faculty of Business and Economics (FBE), The IIPM, New Delhi Competitive MarketsCompetitive Markets A Competitive Market is aA Competitive Market is a market with many buyers andmarket with many buyers and sellers so that each has asellers so that each has a negligible impact on the marketnegligible impact on the market price.price.
  7. 7. Faculty of Business and Economics (FBE), The IIPM, New Delhi Competition: Perfect orCompetition: Perfect or OtherwiseOtherwise  Perfectly Competitive:  Homogeneous Products  Buyers and Sellers are Price Takers  Monopoly:  One Seller, controls price  Oligopoly:  Few Sellers, not aggressive competition  Monopolistic Competition:  Many Sellers, differentiated products  Perfectly Competitive:  Homogeneous Products  Buyers and Sellers are Price Takers  Monopoly:  One Seller, controls price  Oligopoly:  Few Sellers, not aggressive competition  Monopolistic Competition:  Many Sellers, differentiated products
  8. 8. Faculty of Business and Economics (FBE), The IIPM, New Delhi DEMANDDEMAND • Quantity Demanded refers to the amount (quantity) of a good that buyers are willing to purchase at alternative prices for a given period. • Quantity Demanded refers to the amount (quantity) of a good that buyers are willing to purchase at alternative prices for a given period.
  9. 9. Faculty of Business and Economics (FBE), The IIPM, New Delhi Determinants of DemandDeterminants of Demand • What factors determine how much ice cream you will buy? • What factors determine how much you will really purchase? Product’s Own Price Consumer Income Prices of Related Goods Tastes Expectations Number of Consumers • What factors determine how much ice cream you will buy? • What factors determine how much you will really purchase? Product’s Own Price Consumer Income Prices of Related Goods Tastes Expectations Number of Consumers
  10. 10. Faculty of Business and Economics (FBE), The IIPM, New Delhi PricePrice Law of Demand – The law of demand states that, other things equal (ceteris paribus), the quantity demanded of a good falls when the price of the good rises. Law of Demand – The law of demand states that, other things equal (ceteris paribus), the quantity demanded of a good falls when the price of the good rises.
  11. 11. Faculty of Business and Economics (FBE), The IIPM, New Delhi IncomeIncome – As income increases, the demand for a normal good will increase. – As income increases, the demand for an inferior good will decrease. – As income increases, the demand for a normal good will increase. – As income increases, the demand for an inferior good will decrease.
  12. 12. Faculty of Business and Economics (FBE), The IIPM, New Delhi Prices of Related GoodsPrices of Related Goods – Prices of Related Goods – When a fall in the price of one good reduces the demand for another good, the two goods are called substitutes. – When a fall in the price of one good increases the demand for another good, the two goods are called complements. – Prices of Related Goods – When a fall in the price of one good reduces the demand for another good, the two goods are called substitutes. – When a fall in the price of one good increases the demand for another good, the two goods are called complements.
  13. 13. Faculty of Business and Economics (FBE), The IIPM, New Delhi OthersOthers – Tastes & preferences – Expectations – Re-saleability – Advertising – Tastes & preferences – Expectations – Re-saleability – Advertising
  14. 14. Faculty of Business and Economics (FBE), The IIPM, New Delhi The Demand Schedule and theThe Demand Schedule and the Demand CurveDemand Curve – The demand schedule is a table that shows the relationship between the price of the good and the quantity demanded. – The demand curve is a graph of the relationship between the price of a good and the quantity demanded. – Ceteris Paribus: “Other thing being equal” – The demand schedule is a table that shows the relationship between the price of the good and the quantity demanded. – The demand curve is a graph of the relationship between the price of a good and the quantity demanded. – Ceteris Paribus: “Other thing being equal”
  15. 15. Faculty of Business and Economics (FBE), The IIPM, New Delhi Table 4-1:Table 4-1: Catherine’s Demand Schedule 03.00 22.50 42.00 61.50 81.00 100.50 120.00 Quantity of cones Demanded Price of Ice- cream Cone ($)
  16. 16. Faculty of Business and Economics (FBE), The IIPM, New Delhi Figure 4-1:: Catherine’s Demand Curve Price of Ice- Cream Cone Quantity of Ice-Cream Cones 2 4 6 8 10 120 $3.00 2.50 2.00 1.50 1.00 0.50
  17. 17. Faculty of Business and Economics (FBE), The IIPM, New Delhi Market Demand ScheduleMarket Demand Schedule • Market demand is the sum of all individual demands at each possible price. • Graphically, individual demand curves are summed horizontally to obtain the market demand curve. • Assume the ice cream market has two buyers as follows… • Market demand is the sum of all individual demands at each possible price. • Graphically, individual demand curves are summed horizontally to obtain the market demand curve. • Assume the ice cream market has two buyers as follows…
  18. 18. Faculty of Business and Economics (FBE), The IIPM, New Delhi 03.00 100.50 120.00 Catherine Price of Ice- cream Cone ($) Table 4-2: Market demand asTable 4-2: Market demand as the Sum of Individual Demandsthe Sum of Individual Demands + 1 6 7 Nicholas 1 22.50 42.00 61.50 81.00 2 3 4 5 4 7 10 13 16 19 Market =
  19. 19. Faculty of Business and Economics (FBE), The IIPM, New Delhi Price of Ice-Cream Cone Quantity of Ice-Cream Cones D3 D1 D2 Decrease in demand Increas e in demand Figure 4-3: Shifts in theFigure 4-3: Shifts in the Demand CurveDemand Curve
  20. 20. Faculty of Business and Economics (FBE), The IIPM, New Delhi Table 4-3: The DeterminantsTable 4-3: The Determinants of Quantity Demandedof Quantity Demanded
  21. 21. Faculty of Business and Economics (FBE), The IIPM, New Delhi Shifts in the Demand Curve versus Movements Along the Demand Curve
  22. 22. Faculty of Business and Economics (FBE), The IIPM, New Delhi Price of Cigarette s, per Pack. Number of Cigarettes Smoked per Day D2 A policy to discourage smoking shifts the demand curve to the left. 0 20 $2.00 D1 A 10 B Figure 4-4 a): A Shifts in the Demand Curve
  23. 23. Faculty of Business and Economics (FBE), The IIPM, New Delhi Price of Cigarette s, per Pack. Number of Cigarettes Smoked per Day 0 20 $2.00 D1 A A tax that raises the price of cigarettes results in a movements along the demand curve. C 12 $4.00 Figure 4-4 b): A Movement Along the Demand Curve
  24. 24. Faculty of Business and Economics (FBE), The IIPM, New Delhi SUPPLY • Quantity Supplied refers to the amount (quantity) of a good that sellers are willing to make available for sale at alternative prices for a given period. • Quantity Supplied refers to the amount (quantity) of a good that sellers are willing to make available for sale at alternative prices for a given period.
  25. 25. Faculty of Business and Economics (FBE), The IIPM, New Delhi Determinants of SupplyDeterminants of Supply • What factors determine how much ice cream you are willing to offer or produce? Product’s Own Price Input prices Technology Expectations Number of sellers • What factors determine how much ice cream you are willing to offer or produce? Product’s Own Price Input prices Technology Expectations Number of sellers
  26. 26. Faculty of Business and Economics (FBE), The IIPM, New Delhi PricePrice 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. 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.
  27. 27. Faculty of Business and Economics (FBE), The IIPM, New Delhi The Supply Schedule and theThe Supply Schedule and the Supply CurveSupply Curve  The supply schedule is a table that shows the relationship between the price of the good and the quantity supplied.  The supply curve is a graph of the relationship between the price of a good and the quantity supplied.  Ceteris Paribus: “Other thing being equal”  The supply schedule is a table that shows the relationship between the price of the good and the quantity supplied.  The supply curve is a graph of the relationship between the price of a good and the quantity supplied.  Ceteris Paribus: “Other thing being equal”
  28. 28. Faculty of Business and Economics (FBE), The IIPM, New Delhi Table 4-4: Ben’s Supply Schedule 53.00 42.50 32.00 21.50 11.00 00.50 00.00 Quantity of cones Supplied Price of Ice- cream Cone ($)
  29. 29. Faculty of Business and Economics (FBE), The IIPM, New Delhi Price of Ice-Cream Cone Quantity of Ice-Cream Cones 6 8 10 120 2 1.50 1.00 1 2.00 3 4 $3.00 2.50 5 0.50 Figure 4-5:: Ben’s Supply Curve
  30. 30. Faculty of Business and Economics (FBE), The IIPM, New Delhi Market Supply ScheduleMarket Supply Schedule • Market supply is the sum of all individual supplies at each possible price. • Graphically, individual supply curves are summed horizontally to obtain the market demand curve. • Assume the ice cream market has two suppliers as follows… • Market supply is the sum of all individual supplies at each possible price. • Graphically, individual supply curves are summed horizontally to obtain the market demand curve. • Assume the ice cream market has two suppliers as follows…
  31. 31. Faculty of Business and Economics (FBE), The IIPM, New Delhi 53.00 00.50 00.00 Ben Price of Ice- cream Cone ($) Table 4-5: Market supply as the SumTable 4-5: Market supply as the Sum of Individual Suppliesof Individual Supplies + 8 0 0 Nicholas 13 42.50 32.00 21.50 11.00 6 4 2 0 10 7 4 1 0 0 Market =
  32. 32. Faculty of Business and Economics (FBE), The IIPM, New Delhi Price of Ice-Cream Cone Quantity of Ice-Cream Cones S3 S2 S1 Decrease in supply Increase in supply Figure 4-7: Shifts in the SupplyFigure 4-7: Shifts in the Supply CurveCurve
  33. 33. Faculty of Business and Economics (FBE), The IIPM, New Delhi Table 4-6: The Determinants ofTable 4-6: The Determinants of Quantity SuppliedQuantity Supplied
  34. 34. Faculty of Business and Economics (FBE), The IIPM, New Delhi SUPPLY AND DEMAND TOGETHERSUPPLY AND DEMAND TOGETHER • Equilibrium refers to a situation in which the price has reached the level where quantity supplied equals quantity demanded. • Equilibrium refers to a situation in which the price has reached the level where quantity supplied equals quantity demanded.
  35. 35. Faculty of Business and Economics (FBE), The IIPM, New Delhi EquilibriumEquilibrium • 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. • 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.
  36. 36. Faculty of Business and Economics (FBE), The IIPM, New Delhi At $2.00, the quantity demanded is equal to the quantity supplied! Demand Schedule Supply Schedule EquilibriumEquilibrium
  37. 37. Faculty of Business and Economics (FBE), The IIPM, New Delhi Equilibrium price Demand Supply $2.00 6 8 100 Equilibri um Equilibrium quantity Quantity of Ice- Cream Cones Price of Ice-Cream Cone 421 3 5 7 9 11 Figure 4-8: The Equilibrium ofFigure 4-8: The Equilibrium of Supply and DemandSupply and Demand
  38. 38. Faculty of Business and Economics (FBE), The IIPM, New Delhi EquilibriumEquilibrium • 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. • 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.
  39. 39. Faculty of Business and Economics (FBE), The IIPM, New Delhi Demand Supply $2.00 6 8 100 Quantity of Ice-Cream Cones Price of Ice-Cream Cone 421 3 5 7 9 11 $2.50 Surplus Quantity Demanded Quantity Supplied Figure 4-9 a): Excess SupplyFigure 4-9 a): Excess Supply
  40. 40. Faculty of Business and Economics (FBE), The IIPM, New Delhi Demand Supply $2.00 6 8 100 Quantity of Ice-Cream Cone Price of Ice-Cream Cone 421 3 5 7 9 11 $1.50 Shortage Quantity Supplied Quantity Demanded Figure 4-9 b): Excess DemandFigure 4-9 b): Excess Demand
  41. 41. Faculty of Business and Economics (FBE), The IIPM, New Delhi Three Steps To AnalyzingThree Steps To Analyzing Changes in EquilibriumChanges 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. • Use the supply-and-demand diagram to see how the shift affects equilibrium price and quantity. • Example: A Heat Wave • 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. • Use the supply-and-demand diagram to see how the shift affects equilibrium price and quantity. • Example: A Heat Wave
  42. 42. Faculty of Business and Economics (FBE), The IIPM, New Delhi D1 Supply $2.00 6 100 Quantity of Ice-Cream Cone Price of Ice-Cream Cone 421 3 5 7 11 D2 $2.50 1. Hot weather increases the demand for ice cream… 2. … resulting in a higher price … 3. … and a higher quantity sold. New equilibrium Initial equilibrium Figure 4-10: How an IncreaseFigure 4-10: How an Increase Demand Affects the EquilibriumDemand Affects the Equilibrium
  43. 43. Faculty of Business and Economics (FBE), The IIPM, New Delhi Demand S1 $2.00 100 Quantity of Ice-Cream Cones Price of Ice-Cream Cone 421 3 7 11 S2 $2.50 1. An earthquake reduces the supply of ice cream… 2. … resulting in a higher price … 3. … and a lower quantity sold. New equilibrium Initial equilibrium Figure 4-11: How a DecreaseFigure 4-11: How a Decrease Demand Affects the EquilibriumDemand Affects the Equilibrium
  44. 44. Faculty of Business and Economics (FBE), The IIPM, New Delhi D1 S1 0 Quantity of Ice-Cream Cone Price of Ice-Cream Cone Q1 D2 Large increase in demand P2 S2 Q2 New equilibrium Small decrease in supply Initial equilibrium P1 Figure 4-12 a): A Shift inFigure 4-12 a): A Shift in Both Supply and DemandBoth Supply and Demand
  45. 45. Faculty of Business and Economics (FBE), The IIPM, New Delhi D1 S1 0 Quantity of Ice-Cream Cone Price of Ice-Cream Cone Q1 D2 Large decrease in supply P2 S2 Q2 New equilibrium Small increase in demand Initial equilibrium P1 Figure 4-12 b): A Shift inFigure 4-12 b): A Shift in Both Supply and DemandBoth Supply and Demand
  46. 46. Faculty of Business and Economics (FBE), The IIPM, New Delhi Table 4-8: What Happens to PriceTable 4-8: What Happens to Price and Quantity when Supply or Demandand Quantity when Supply or Demand Shifts?Shifts?
  47. 47. Faculty of Business and Economics (FBE), The IIPM, New Delhi ConcludingConcluding Remarks…Remarks… • Market economies harness the forces of supply and demand. . . • Supply and Demand together determine the prices of the economy’s different goods and services. . . • Prices in turn are the signals that guide the allocation of resources. • Market economies harness the forces of supply and demand. . . • Supply and Demand together determine the prices of the economy’s different goods and services. . . • Prices in turn are the signals that guide the allocation of resources.
  48. 48. Faculty of Business and Economics (FBE), The IIPM, New Delhi SummarySummary • Economists use the model of supply and demand to analyze competitive markets. • In a competitive market, there are many buyers and sellers, each of whom has little or no influence on the market price. • Economists use the model of supply and demand to analyze competitive markets. • In a competitive market, there are many buyers and sellers, each of whom has little or no influence on the market price.
  49. 49. Faculty of Business and Economics (FBE), The IIPM, New Delhi SummarySummary • The demand curve shows how the quantity of a good depends upon the price. – According to the law of demand, as the price of a good falls, the quantity demanded rises. Therefore, the demand curve slopes downward. – In addition to price, other determinants of how much consumers want to buy include income, the prices of complements and substitutes, tastes, expectations, and the number of buyers. – If one of these factors changes, the demand curve shifts. • The demand curve shows how the quantity of a good depends upon the price. – According to the law of demand, as the price of a good falls, the quantity demanded rises. Therefore, the demand curve slopes downward. – In addition to price, other determinants of how much consumers want to buy include income, the prices of complements and substitutes, tastes, expectations, and the number of buyers. – If one of these factors changes, the demand curve shifts.
  50. 50. Faculty of Business and Economics (FBE), The IIPM, New Delhi SummarySummary The supply curve shows how the quantity of a good supplied depends upon the price. According to the law of supply, as the price of a good rises, the quantity supplied rises. Therefore, the supply curve slopes upward. In addition to price, other determinants of how much producers want to sell include input prices, technology, expectations, and the number of sellers. If one of these factors changes, the supply curve shifts. The supply curve shows how the quantity of a good supplied depends upon the price. According to the law of supply, as the price of a good rises, the quantity supplied rises. Therefore, the supply curve slopes upward. In addition to price, other determinants of how much producers want to sell include input prices, technology, expectations, and the number of sellers. If one of these factors changes, the supply curve shifts.
  51. 51. Faculty of Business and Economics (FBE), The IIPM, New Delhi SummarySummary • Market equilibrium is determined by the intersection of the supply and demand curves. • At the equilibrium price, the quantity demanded equals the quantity supplied. • The behavior of buyers and sellers naturally drives markets toward their equilibrium. • Market equilibrium is determined by the intersection of the supply and demand curves. • At the equilibrium price, the quantity demanded equals the quantity supplied. • The behavior of buyers and sellers naturally drives markets toward their equilibrium.
  52. 52. Faculty of Business and Economics (FBE), The IIPM, New Delhi AssignmentAssignment
  1. A particular slide catching your eye?

    Clipping is a handy way to collect important slides you want to go back to later.

×