The theory of price, also known as price theory, is a microeconomic principle that uses the concept of supply and demand to determine the appropriate price point for a good or service. The goal is to achieve equilibrium in which the quantities of goods or services provided match the corresponding market's desire and ability to acquire the good or service. The concept allows for price adjustments as market conditions change.

1. Price Theory : Demand and Supply
Author : Thapelo Mkhize

2.  In this presentation you will learn :
1.The definition of the Demand and Supply
2. The Law of demand and Supply
3. The determinants of Demand and Supply
4. The distinction between movements along the
curves and shifts in the curves

3. Market
A place where BUYERS and SELLERS meet for the exchange of goods and services.

4. Supply and Demand interaction with the Market
MARKET
SUPPLY

5. Demand and Market Demand
 What is demand ?
 Demand is the consumer's desire and ability to purchase a good or service. It's the underlying
force that drives economic growth and expansion. Without demand, no business would ever
bother producing anything.
 What is a “Market demand curve’’
 It shows the relationship between the quantity and price per unit of a good that consumers are
willing and able to purchase, holding other variables constant.
 Figure on the next slide shows the straight line connecting those points called the market
demand curve interpolates the quantities consumers would be willing and able to purchase at
the market prices.

6. Graphical illustration of Demand

7. Demand in Markets
PRICE (RANDS) QUANTITY
1 70
1.5 65
2 60
2.5 55
3 50
 The Demand schedule is a table
showing how much of a given
product a household would be
willing to buy at different prices
 Demand curves are usually
derived from demand schedules.

8. The Law of Demand
IMPORTANT FEAUTURE: THE HIGHER (Lower) THE PRICE, THE
LOWER (Higher) THE QUANTITY WE ARE WILLING TO BUY.
THE LAW OF DEMAND

9. Supply and Market Supply
 What is Supply ?
 The quantities that a seller is willing and able to sell at different prices.
 What is Market Supply ?
 the total quantity of a good or service all producers are willing to provide at the prevailing set
of relative prices during a defined period of time
 Figure on the next slide shows the straight line connecting those points called the market
supply curve interpolates the quantities suppliers would be willing and able to produce and
supply at the market prices.

10. Graphical illustration of Supply

11. Supply in Markets
Price ( rands) Quantity
5 100
15 200
25 400
35 600
 A supply schedule is a table showing
how much of a product firms will supply
at different prices.
 Supply curves are usually derived from
Supply schedules.

12. The Law of Supply
As the price of a good or service increases, the
quantity of goods or services that suppliers offer will
increase, and vice versa.
LAW OF SUPPLY

13. Determinants of SUPPLY(SUPPLY
SHIFTERS)
 When supply shifts to the right, supply
increases . This causes quantity supplied
to be greater than it was prior to the
shift, for each and every price level.

14. Determinants of SUPPLY(SUPPLY SHIFTERS)
 Tax and Subsidies
 Expectations of the suppliers
 Number of Sellers in the Market
 Innovation of Technology

15. Determinants of Demand
(DEMAND SHIFTERS)
 When demand shifts to the right,
demand increases. This causes
quantity demanded to be greater than
it was prior to the shift, for each and
every price level

16. Determinants of Demand (DEMAND SHIFTERS)
 Changes in income of buyers
 Changes in preferences of consumers.
 Expectations (about prices going up or down)
 Number of buyers in the market

17. Comparison between a movement along the
curve and a shift of the curve
Shift of Demand Versus Movement Along a
Demand Curve
 A change in demand is not the same as a
change in quantity demanded
 a higher price causes lower quantity demanded.
 Changes in determinants of demand, other than
price, cause a change in demand, or a shift of
the entire demand curve
Shift of Supply Versus Movement Along a
Supply Curve
 A change in supply is not the same as a
change in quantity supplied
 a higher price causes higher quantity
supplied, and a move along the supply
curve.
 Changes in determinants of supply, other
than price, cause an increase in supply, or a
shift of the entire supply curve

18. Market Equilibrium
• Producers are able to sell their total output
at the equilibrium price. Customers can buy
the quantity of the good they need at the
equilibrium price.
• Only in equilibrium is quantity supplied
equal to quantity demanded.
• At any price level other than P1, the wishes
of buyers and sellers do not coincide.

19. References
 Buensuceso , N. (2011) Demand, Supply, and Market Equilibrium . Available from Slideshare at
https://goo.gl/mzKxpg (Accessed 24 August 2018).
 Majithia , K . (2011) Demand and supply. Available from Slideshare at
https://www.slideshare.net/kinnar32/demand-and-supply-10239895 (Accessed 24 August 2018).
 Trullinger , L . (2009) Supply and Demand . Available from Slideshare at
https://www.slideshare.net/lntrullin/supply-and-demand-1184484 (Accessed 20 August 2018).
 Khoza , L . (2018 ) market forces demand and supply . Available from Slideshare at
https://www.slideshare.net/khozalucky/chapter2-marketforcesdemandandsupply180826094142 (Accessed 1
September 2018).
 Advance Business Consulting . ( 2010) Supply and Demand, Law of Demand, Law of Supply, Equilibrium Available
from Slideshare at https://goo.gl/b44or7 (Accessed 25 August 2018)