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Basic elements of demand and supply
- 1. Basic Elements of Demandand Supply PRESENTED BY: RANA SAJJAD ALI ROLL NUMBER: BCSF16A540
- 2. Contents: Demand Lawof Demand Demand curve Forces behind the demand curve & Shift Elasticity Calculating Demand Elasticities Factors affecting Elasticity Supply Law of Supply Supply Curve Shift in supply curve calculating Supply Elasticity
- 3. What is Demand? Quantitydemanded of a product or service is the number that would be bought by the public at a given price Quantity Demand is the function of Price level.
- 4. Law of Demand QuantityDemand is Inversely Proportional to the Price Level. while keeping other things constant. Law of Demand is affected By: 1. Substitution Effect 2. Income Effect
- 5. Assumptions Homogeneous Commodity Same taste or feasibility No change in income No change in climate No change in price of substitutes No change in population growth
- 6. The Substitution Effect Asthe price for one good rises compared to a similar good, consumers will substitute the similar good for their purchases.
- 7. The Income Effect As prices go up, your money becomes worth less than it was worth before People are less likely to buy the good now
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- 9. Forces Behind theDemand curve These are the Constant things: Average Income Size of Market Influence of Related Goods Taste And Preference Special Influence Population Growth Climate
- 10. Shift in DemandCurve When We relax any of the constant Things there is a Shift in The Demand Curve. Two Types of Shift Upward Shift Downward Shift
- 11. Elasticity Elasticity refers tohow responsive the quantity demanded is to a change in prices, it is also called price elasticity of demand.
- 12. Types of Elasticity Price Elasticity Income Elasticity Cross Elasticity
- 13. Calculating Elasticity 1. PriceElasticity 1. Expenditure Method 2. Geometrical Method 3. %age Method 2. Income Elasticity %age Method 3. Cross Elasticity %age Method
- 14. Calculating Elasticity PriceElasticity: Total Outlay method(Expenditure Method): In it we measure the change in expenditure. Before and after the Variation in price. Geometrical Method(Point Method): no. of Lower points of Demand curve Elasticity demand = ______________________________________ no. of upper points of the Demand curve Percentage Method Elasticity demand = (%age change in Q)/(%age Change in P)
- 15. Calculating Elasticity IncomeElasticity: %age change in Q Elasticity = _______________________________ %age change in Income(Y) Cross Elasticity: %age change in Quantity of Y Elasticity = ________________________________ %age change in Quantity of X
- 16. Factors Affecting Elasticity Price Level Income Level Price of Substitutions Consumer Adjustment Market Size
- 17. What is Supply? Quantitysupplied is the quantity of a commodity that producers are willing to sell at a particular price at a particular point of time. Quantity Supply is the function of Price level.
- 18. Law Of Supply “Other things remaining same, when price of a commodity increases its quantity supplied increases and if price of a commodity decreases, quantity supplied also decreases”. Quantity Supply is Directly Proportional To the Price level.
- 19. Assumptions: No Changein cost of production No change in Technology No change in efficiency of Factors of production No new Invention/ Innovation No natural Calamities No change in Weather conditions No change in Government Policies
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- 21. Shift in SupplyCurve When We relax any of the constant Things there is a Shift in The Demand Curve. Two Types of Shift Outward Shift Inward Shift
- 22. Supply Elasticity Thereis only one supply elasticity. %age change in Quantity Supply E(S) = __________________________________ %age change in Price Level
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