Demand and Supply

Demand & Supply
cc: dugsong - https://www.flickr.com/photos/52237059@N00

What is demand?
cc: Gideon - https://www.flickr.com/photos/48889052707@N01

it refers to:
• the willingness and ability of
buyers to purchase different
quantities of a good
• at different prices
• during a specific time period (per
day, week ,etc...)
cc: Meaning conference - https://www.flickr.com/photos/87796244@N07

note: unless both willingness to buy and
ability to buy are present, there is NO
demand, and a person is NOT a buyer.cc: garryknight - https://www.flickr.com/photos/8176740@N05

The Law of Demand
cc: smlp.co.uk - https://www.flickr.com/photos/28552335@N00

Will people buy more units of a good
at lower prices than at higher prices?
cc: matt hutchinson - https://www.flickr.com/photos/17524395@N00

Will people buy more apple at
P10 a piece than at P70 a piece?
cc: chrisinplymouth - https://www.flickr.com/photos/21450297@N06

the law of demand states that as the price of a good
rises, the quantity demanded of the goods falls and
that as the price of a good falls, the quantity
demanded of the good rises, ceteris paribus- if all
other relevant factors remain unaltered-cc: ticoneva - https://www.flickr.com/photos/14282435@N00

Quantity Demanded
is the number of units of a good that individual are
willing and able to buy at a particular price.
cc: g_firkser - https://www.flickr.com/photos/38902313@N04

suppose individuals are willing and able to buy 100
crates of tomato per week at a price of P 750 per
crate. Therefore, 100 crates is the quantity demanded
of tomato at P 750.cc: chrisinplymouth - https://www.flickr.com/photos/21450297@N06

a warning: demand is different
from quantity demand
cc: badjonni - https://www.flickr.com/photos/38834306@N00

demand speaks to the willingness and
ability of buyers to buy different
quantities of a good at different prices.cc: Great Beyond - https://www.flickr.com/photos/26104563@N00

Quantity demanded speaks to the willingness and
ability of buyers to buy a specific quantity (say, 100
units of a good) at a specific price
(say, P10 per unit)cc: xavi talleda - https://www.flickr.com/photos/46527925@N04

Four ways to Represent
THE LAW OF DEMAND
cc: Malinkrop - https://www.flickr.com/photos/34770928@N07

four ways
1. In words
2. In symbols
3. In a demand schedule
4. As a demand curve
cc: Cook Jones - https://www.flickr.com/photos/7679022@N06

as the price of a good rises, quantity
demanded falls, and as price falls,
quantity demanded rises, ceteris paribuscc: Pierre Metivier - https://www.flickr.com/photos/44921934@N00

P Qd P Qd ceteris paribus
cc: jfinnirwin - https://www.flickr.com/photos/27635119@N08

demand schedule is the numerical
representation of the law of demand
cc: Daquella manera - https://www.flickr.com/photos/62518311@N00

Price (dollars) Quantity Demanded
4 10
3 20
2 30
1 40
DEMAND SCHEDULE FOR GOOD X

demand curve is the graphical representation of the
inverse relationship between price and quantity
demanded, a demand curve is a picture of the law of
demandcc: Oeko-Institut e.V. - https://www.flickr.com/photos/53993403@N07

why does quantity demanded go down
as price goes up?
cc: dr_tr - https://www.flickr.com/photos/30766403@N02

two reasons
1. people substitute lower
priced goods for higher priced
goods
2. the law of diminishing
marginal utility
cc: @Doug88888 - https://www.flickr.com/photos/29468339@N02

many goods serve the same purpose.
a rise in the price of the good will lead to
a decrease in the quantity demanded.
cc: Richard 'Tenspeed' Heaven - https://www.flickr.com/photos/35254977@N08

according to the law of diminishing marginal utility,
individuals obtain less utility from additional units of
a good.

Therefore, they will buy larger quantities of a good
only at lower prices.

the more utility you receive from a unit of a good,the
higher the price you are willing to pay for it; the less
utility you receive from a unit of a good, the lower
the price you are willing to pay for it.cc: cellar_door_films - https://www.flickr.com/photos/54474727@N00

Individual demand curve & Market demand curve
cc: Peter Kaminski - https://www.flickr.com/photos/35034359460@N01

Individual Demand Curve represents the
price-quantity combinations of a
particular good for a single buyercc: jennifer.stahn - https://www.flickr.com/photos/125343440@N08

Market Demand Curve represents the
price-quantity combinations of for all
buyerscc: marcp_dmoz - https://www.flickr.com/photos/30982194@N05

a Market Demand Curve is derived
by "adding up" individual demand
curvecc: Dave Dugdale - https://www.flickr.com/photos/37387065@N05

Quantity Demanded
Price Juan Dela Cruz Maria Del Pilar Other buyers All buyers
15 1 2 20 23
14 2 3 45 50
13 3 4 70 77
12 4 + 5 + 100 = 109
11 5 + 6 + 130 = 141
10 6 7 160 173

A change in quantity demanded versus a change in demand
cc: Foo Joon Sunn - https://www.flickr.com/photos/35886963@N06

A change in quantity demanded is
not the same as a change in
demand.cc: Nanagyei - https://www.flickr.com/photos/32876353@N04

A change in quantity demanded is a number
of units of a good that individuals are willing
and able to buy at a particular price
cc: Andrew_Writer - https://www.flickr.com/photos/78135748@N00

Change in Demand= a movement from one
point on the same demand curve caused by a
change in the price of the good.
cc: Alan O'Rourke - https://www.flickr.com/photos/33524159@N00

A change in demand= a change --or
shift--in the entire demand curve
cc: Pilot Theatre - https://www.flickr.com/photos/30424390@N06

Demand can change in two ways
1. demand can increase
2. demand can decrease
cc: Juliana Coutinho - https://www.flickr.com/photos/10217810@N05

DEMAND SCHEDULE A
PRICE QUANTITY DEMANDED
20 500
15 600
10 700
5 800
DEMAND SCHEDULE B (increase in demand)
20 500 600
15 600 700
10 700 800
5 800 900

DEMAND SCHEDULE B (decrease in demand)
20 500 400
15 600 500
10 700 600
5 800 700

What factors cause the demand curve to shift?
cc: eltpics - https://www.flickr.com/photos/54942754@N02

Factors or Variables
1. income
2. preferences
3. prices of related goods
4. the number of buyers
5. expectation of future prices
cc: rodaniel - https://www.flickr.com/photos/13644457@N00

Income - as person's income changes(increases
or decreases), that individual's demand for a
particular good may rise, fall or remain constant.
cc: Jeremy Brooks - https://www.flickr.com/photos/85853333@N00

for a Normal Good,demand rises as
income rises, and falls as income
fallscc: WarzauWynn - https://www.flickr.com/photos/94246031@N00

for inferior good, demand falls as income
rises, and demand rises as income falls.
cc: Tighten up! - https://www.flickr.com/photos/67818206@N00

for neutral good, demand does
not change as income rises or falls.
cc: PinkMoose - https://www.flickr.com/photos/82072056@N00

Preferences- a change in preferences in
favor of a good shifts the demand curve
rightward.cc: e_s_jp - https://www.flickr.com/photos/46464136@N00

a change in preferences away from the
good shifts the demand curve leftward
cc: kevin dooley - https://www.flickr.com/photos/12836528@N00

Prices of related goods: there 2
types of goods--substitutes &
complementscc: Gavin St. Ours - https://www.flickr.com/photos/86435488@N00

two goods are substitutes if they
satisfy similar needs or desires
cc: JeepersMedia - https://www.flickr.com/photos/39160147@N03

if two goods are substitutes, as the price
of one rises (falls), the demand for the
other rises(falls)cc: Thomas Hawk - https://www.flickr.com/photos/51035555243@N01

Complements--- two goods are
complements are consumed
jointlycc: RLHyde - https://www.flickr.com/photos/36655009@N05

if two goods are complements, as the
price of one rises(falls), the demand for
the other falls (rises)cc: tyle_r - https://www.flickr.com/photos/24673084@N04

Number of buyers---more buyers, higher
demand; fewer buyers, lower demand
cc: szeke - https://www.flickr.com/photos/43355249@N00

Expectation of future price---buyers who
expect the price of good to be higher next
month may buy it nowcc: Daniel Kulinski - https://www.flickr.com/photos/7729940@N06

What is Supply?
cc: dugsong - https://www.flickr.com/photos/52237059@N00

it refers to:
• the willingness and ability of
sellers to produce and offer to sell
different quantities of a good
• at different prices
• during a specific time period (per
day, week ,etc...)

The Law of Supply
cc: smlp.co.uk - https://www.flickr.com/photos/28552335@N00
States that as the price of a good rises, the quantity
supplied of the good rises, and as the price of a
good falls, the quantity supplied of the good falls,
ceteris paribus
•The upward-sloping supply curve is the graphical
Representation of the law of supply.

9/6/2020
Why supply curves are upward sloping?
- The upward-sloping supply curve reflects the fact, that in
the certain conditions a higher price is an incentive to
producers to produce more of the good.

The incentive comes in form of higher
profit
cc: Great Beyond - https://www.flickr.com/photos/26104563@N00

Suppose the price of good X rises, and nothing else
changes (such as the per-unit costs of producing good
X).
In that case, the producers of good X will earn higher
profits per unit and are thus encouraged to increase the
quantity of good X that they supply to the market.

Quantity supplied
• Is the number of units that sellers
are willing and able to produce and
offer to sell at a particular price
 The change in quantity supplied- is
the movement along the supply
curve, which shows the movement
from one point to another point on
the same supply curve.

Individual Supply Curve versus Market Supply Curve
cc: Foo Joon Sunn - https://www.flickr.com/photos/35886963@N06

Individual Supply Curve represents the
price-quantity combinations of a single
sellercc: jennifer.stahn - https://www.flickr.com/photos/125343440@N08

Market Supply Curve represents the
price-quantity combinations for all sellers
of a particular goodcc: marcp_dmoz - https://www.flickr.com/photos/30982194@N05

a Market Supply Curve is derived by
"adding up" individual supply
curvescc: Dave Dugdale - https://www.flickr.com/photos/37387065@N05

Quantity Supplied
Price Jones Company Smith Company Other suppliers All Suppliers
10 1 2 96 99
11 2 3 98 103
12 3 4 102 109
13 4 + 5 + 106 = 115
14 5 + 6 + 108 = 119
15 6 7 110 123

A change in Supply means shifts in
Supply curves
cc: Nanagyei - https://www.flickr.com/photos/32876353@N04

Supply change in two ways
1. Rise/ increase- the suppliers are willing and able to
produce and offer to sell more of the good at all
prices.
An increase in supply shifts the entire supply curve to the
right

Supply change in two ways
2. Fall/ decrease- the supply of a good decrease if
sellers are willing and able to produce and offer to sell
less of the good at all prices.
A decrease in supply shifts the entire supply curve to the
left.

What factors cause the Supply curve to shift?
cc: eltpics - https://www.flickr.com/photos/54942754@N02

Factors or variables
1.Prices of relevant resources
2. Technology
3. Prices of other goods
4. The number of sellers
5. Expectation of future prices
6.Taxes and subsidies
7.Government restrictionscc: rodaniel - https://www.flickr.com/photos/13644457@N00

1.Prices of relevant resources
- Resources are needed to produce
goods
- If resource X falls, producing good X
becomes less costly
- The Supply curve will shift rightward

2. Technology
- defined as the body of skills and knowledge
concerning the use of resources in production.
- Produce more output with a fixed amount of
resources, reducing per- unit production costs.
- Unit production costs will fall, profitability will
increase, and producers will want to produce and sell
more at each price.
- The supply curve of the good will shift rightward.

3. Prices of other goods
- Think of a farmer who is producing rice.
Suddenly, the price of something he is not
producing (say corn) rises relative to rice
- The farmer might shift his farming away from
rice to corn
- Change in the price of one good can lead to
changes in the supply of another good.

4. Number of sellers
- More sellers begin producing a good because
of high profits;
- The supply curve will shift rightward
- If sellers stop producing a good because of
losses
- The supply curve will shift leftward.

5. Expectations of future price
- If the price of the good expected to be higher
in the future, producers may hold back some
of the product today
- the current supply curve will shift leftward.

6. Taxes
- Taxes increase per unit costs.
- This tax leads to a leftward shift in the supply
curve
- If the tax eliminated the supply curve will
shift rightward

7.Government Restrictions
- Sometimes government acts to reduce
supply.
- Import quota or quantitative restriction on
foreign goods; shift the supply curve leftward
- Elimination of restriction shifts the supply
curve rightward

Market Equilibrium
cc: marcp_dmoz - https://www.flickr.com/photos/30982194@N05

Market Equilibrium – is a situation in
which, at the current market price,
quantity supplied equals quantity
demandedcc: marcp_dmoz - https://www.flickr.com/photos/30982194@N05

When the market is in equilibrium, there
is no tendency for the price to increase or
decreasecc: marcp_dmoz - https://www.flickr.com/photos/30982194@N05

Shortage: excess quantity demanded
A situation in which consumers are willing
to buy more than producers are willing to
sell. It occurs when market price is lower
than equilibrium price

An increase in the price eliminates the
shortage by changing both quantity
demanded and quantity supplied until the
original equilibrium is established

Surplus: excess quantity supplied
A situation in which producers are willing
to sell more than consumers are willing to
buy. It occurs when market price is above
equilibrium price

A decrease in the Price eliminates excess
supply by changing both quantity
demanded and quantity supplied until the
original equilibrium is established.

Demand and Supply

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