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1. THE MARKET
FORCES OF
SUPPLY AND
DEMAND

2. DEMAND

4. DEMAND
• The quantity demanded of any good is the amount of the
good that buyers are willing and able to purchase
• Ability to buy: Do you have money needed to pay for the
product?
• Willingness to buy: Are you willing to pay for this product when
there might be an alternative use for the money?
? Willing to buy, but unable to buy? Give examples.
? Unwilling to buy, but able to buy? Give examples

5. Demand is expressed by 2
factors: Price (P) and
Quantity demanded (Qd)
The relationship between P
and Qd

6. !!! Some goods are AGAINST the law of Demand
–Scarce goods or speculated goods
–Low quality or bad reputation goods

7. TOOLS TO DEMONSTRATE DEMAND
Relationship
between
price and
quatity
Demand
schedule:
A table
Demand
curve:
A graph
Demand
equation:
an
equation

9. DEMAND EQUATION
• P = a + bQD or QD = c +dP
(a,c are constants ; b,d are coefficients ) => b,d < 0
• Find the demand equation from the below demand schedule
• P = 4,8 – 0,03 QD
P 4,2 3,6 3,0 2,4 1,8 1,2 0,6
Qd 20 40 60 80 100 120 140

10. • Individual demand: demand of one individual
• Market demand: sum of all individual demands for a good or
service
• Market demand curve: sum of individual demand curves
horizontally
Price of ice cream cone Lisa Leon Market
$0.0 12 7 19
$0.5 10 6 16
$1.0 8 5 13
$1.5 6 4 10
$2.0 4 3 7
$2.5 2 2 4
$3.0 0 1 1

11. Lisa’s demand + Leon’s demand = Market demand
DLisa
DLeon
Dmarket

12. Ex 1: Assume that in the market of product X,
there are 2 buyers A and B. The demand function
of each buyer is given below.
• P1 = a – bQ1
• P2 = c – dQ2
Determine the market demand?
12

13. Answer:
•P1 = a – bQ1 => bQ1 = a – P1 => Q1 = a/b – 1/b
x P1
•P2 = c – dQ2 => dQ2 = c – P2 => Q2 = c/d – 1/d
x P2
•P = P1 = P2, Q = Q1 + Q2
Q = Q1 + Q2 = (a/b + c/d) – (1/b + 1/d)P
Q = (a/b + c/d) – (1/b + 1/d)P
13

14. • Ex 2: Assume that in the market of product X
there are 3 buyers A, B, C. The individual
demand function of each buyer is given below:
• P1 = 100 – Q1, P2 = 80 - 0,5Q2, P3 = 60 - 0,4Q3
• Determine the market demand?
14

15. Answer:
•Q1 = 100 – P1
•Q2 = 160 – 2P2
•Q3 = 150 – 2,5P3
Q = Q1 + Q2 + Q3 and P = P1 = P2 =P3
•=> Q = 410 – 5,5P
15

16. MOVEMENT ALONG A DEMAND CURVE
• Movement along the demand curve caused by a
change in the price of the product
Price of the good itself

17. SHIFT IN A DEMAND CURVE
• A shift in the demand curve (either left of right) caused by
changes in non-price factors
• Increase in demand: shifts right
• Decrease in demand: shifts left

18. VARIABLES THAT CAN SHIFT THE DEMAND CURVE
Demand
Income
Prices of
related goods
Tastes
Number of
buyers
Expectations

19. INCOME
Normal goods
(necessary
goods & luxury
goods)
Inferior goods
When income increases

20. PRICES OF RELATED GOODS
• A & B are substitutes : used in place of another.
( coffee & tea )
Price of A increases => quantity demanded of B increases
• A &B are complements: bought and used together.
(Gas & Gas stove )
Price of A increases => quantity demanded of B decreases

21. NUMBER OF BUYERS
• N ↑ => QD ↑ => the demand curve shifts to the right
• N ↓ => QD ↓ => the demand curve shifts to the left

22. TASTES
• Tastes: the feelings of consumers about the
desirability of different goods
Change in tastes – changes the demand

23. EXPECTATIONS
• Expectation – about the future (income, prices) affect
curent demand

24. NOTES
The movement along demand curve is diffrent from
the shift of demand curve.
The movement along demand curve is caused by the
changes of good’s price only.

25. Assume that the pice of gasoline increases, how this
event affects:
a. Quantity demanded of gasoline?
b. Demand of gas-stove?
c. Demand of electric-stove?
Known that gas-stove and electric-stove are subtitutes.

26. SUPPLY

27. SUPPLY
• The quantity supplied is the amount of the good that
sellers are willing and able to sell.

28. Supply is expressed by 2
factors: Price (P) and
Quantity supplied (Qs)
The relationship between P
and Qs

29. LAW OF SUPPLY

30. TOOLS TO DEMONSTRATE SUPPLY
Relationship
between price
and quatity
supplied
Supply schedule:
A table
Supply curve:
A graph
Supply equation:
an equation

31. SUPPLY EQUATION
• P = a + b*Qs or Qs = c + d*P
(a,c are constants; b,d are coefficients; b,d > 0)
• Create a supply equation from below supply schedule
P ($) 1 1.5 2 2.5 3
Qs 1 2 3 4 5

32. • Individual supply: supply of one individual
• Market supply: sum of all individual supply for a good or
service
• Market supply curve: sum of individual supply curves
horizontally
Price of ice
cone ($)
Ben Jerry Market
0 0 0 0
0.5 0 0 0
1 1 0 1
1.5 2 2 4
2 3 4 7
2.5 4 6 10
3 5 8 13

34. MOVEMENT ALONG A SUPPLY CURVE
• Movement along the supply curve caused by a change in the
price of the product

35. SHIFT IN A SUPPLY CURVE
• A shifft in the supply curve (either left of right) caused by changes
in non-price factors
• Increase in supply: shifts right
• Decrease in supply: shifts left

36. Supply
Input
prices
Technolog
y
Tax
Number of
sellers
Expectations

37. INPUT PRICES
The supply of a good is negatively related to the price of the
inputs used to make the good.
Pi
S

38. TECHNOLOGY
• Advanced technology – increase in supply
• Low technology – decrease in supply

39. EXPECTATIONS
• Expectations of the sellers

40. NUMBER OF SELLERS
• N ↑ => QS ↑ => the supply curve shifts to the right
• N ↓ => QS ↓ => the supply curve shifts to the left

41. TAX
• T ↓ => QS ↑ => the supply curve shifts to the right
• T ↑ => QS ↓ => the supply curve shifts to the left

42. QUIZ
1. What will happen with market for mini vans?
a. People decide to have more children.
b. A strike by steelworkers raises steel prices.
c. Engineers develop new automated machinery for the
production of minivans.
d. The price of sports utility vehicles rises.

43. 2. What will happen with the market for new car?
a. Carworkers’ wages rise constantly
b. A new robot technology is introduced in factories
c. Price of bus ticket decreased constantly
d. Real income increase and car is a normal good

44. EQUILIBRIUM

45. EQUILIBRIUM
There is one point at which the supply and demand curves
intersect. This point is called the market’s equilibrium.
The price at this intersection is called the equilibrium price,
and the quantity is called the equilibrium quantity
Quantity supplied = Quantity demanded

46. • At the equilibrium price, the quantity of the good that buyers
are willing and able to buy exactly balances the quantity that
sellers are willing and able to sell

49. CHANGE IN EQUILIBRIUM
3 steps to analyzing changes in equilibrium:
Step 1: Decide whether the event shifts the supply
curve, or the demand curve, or in some case, both
curves.
Step 2: Decide whether the curve shifts to the right or
to the left.
Step 3: Use the supply and demand diagram to
compare the initial and the new equilibrium, which
shows how the shift affects the equilibrium price and

50. CHANGE IN EQUILIBRIUM
• What will happen on the market for ice cream?
–Very hot weather
–Very cold weather
–A hurricane destroys part of the sugarcane crop and drives
up the price of sugar
–New technology on manufacturing ice cream
–Very hot weather and a hurricane

51. CHANGE IN EQUILIBRIUM
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