Demand and supply

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What Happen to Price and Quantity When Supply and Demand Change?

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Demand and supply

  1. 1. Mr. Rey Belen
  2. 2. <ul><li>The Quantity Demanded of any good is the amount of the good that buyers are willing and able to purchase. </li></ul><ul><li>Law of Demand: the claim that the quantity demanded of a good falls when the price of the good rises, other things equal. </li></ul>
  3. 4. <ul><li>Variable A change in this variable </li></ul><ul><li>Own Price …causes a movement </li></ul><ul><li> along the D curve </li></ul><ul><li># of buyers …shifts the D curve </li></ul><ul><li>(Normal vs. Inferior) </li></ul><ul><li>Income …shifts the D curve </li></ul><ul><li>Price of </li></ul><ul><li>related goods …shifts the D curve </li></ul><ul><li>(Substitutes vs. Complements) </li></ul><ul><li>Tastes …shifts the D curve </li></ul><ul><li>Expectations …shifts the D curve </li></ul>
  4. 5. <ul><li>The Quantity Supplied of any goods is the amount that sellers are willing and able to sell. </li></ul><ul><li>Law of Supply: the claim that the quantity supplied of a good rises when the price of the goods rises, other things equal. </li></ul>
  5. 7. <ul><li>Variable A change in this variable </li></ul><ul><li>Own Price …causes a movement </li></ul><ul><li> along the S curve </li></ul><ul><li>Input Prices …shifts the S curve </li></ul><ul><li>(minimum wage increase) </li></ul><ul><li>Technology …shifts the S curve </li></ul><ul><li># of Sellers …shifts the S curve </li></ul><ul><li>Expectations …shifts the D curve </li></ul>
  6. 8. PRICE QUANTITY D S Equilibrium: P has reached the level where quantity supplied equals quantity demanded
  7. 9. PRICE QUANTITY D S When quantity supplied is greater than quantity demanded SURPLUS
  8. 10. PRICE QUANTITY D S When quantity demanded is greater than quantity supplied SHORTAGE
  9. 11. <ul><li>To determine the effects of any event, </li></ul><ul><li>Decide whether event shift S curve, D curve, or both. </li></ul><ul><li>Decide in which direction curve shifts. </li></ul><ul><li>Use supply-demand diagram to see how the shift changes eq’m P and Q . </li></ul>
  10. 12. PRICE OF DIESEL CARS QUANTITY OF DIESEL CARS D1 S1 Analyze the effect of: -Increase in price of gas -New technology reduces cost of producing diesel cars P1 Q1
  11. 13. D1 S1 Event to be analyze: -Increase in price of gas P1 Q1 Step 1: D curve shifts to the right The shift causes an increase in price and quantity of diesel cars P2 D2 Q2 PRICE OF DIESEL CARS QUANTITY OF DIESEL CARS
  12. 14. D1 S1 Event to be analyze: -New technology reduces cost of producing diesel cars. P1 Q1 Step 1: S curve shifts to the right The shift causes price to fall and quantity to rise P2 Q2 S2 PRICE OF DIESEL CARS QUANTITY OF DIESEL CARS
  13. 15. D1 S1 P1 Q1 P2 D2 Q2 S2 PRICE OF DIESEL CARS QUANTITY OF DIESEL CARS
  14. 16. D1 S1 P1 Q1 P2 D2 Q2 S2 PRICE OF DIESEL CARS QUANTITY OF DIESEL CARS
  15. 18. No Change in Supply An Increase in Supply A Decrease in Supply No Change in Demand P same Q same P down Q up P up Q down An Increase in Demand P up Q up P ambiguous Q up P up Q ambiguous A Decrease in Demand P down Q down P down Q ambiguous P ambiguous Q down
  16. 19. PRICE QUANTITY D1 S1 P1 Q1
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