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1. Form Four Business Class
Demand, Supply and Equilibrium
By. Daud Dahir Hassan
Twitter: Dauddhassan
Facebook: Amirdadahfrta

2. Introduction and Overview
•Supply and demand are the two words that
economists use most often.
•Supply and demand are the forces that make
market economies work.
•Modern microeconomics is about supply,
demand, and market equilibrium.

3. Demand
 The amount of a good, service, or resource
that people are willing and able to buy during a
specified period at a specified price.
•Quantity demanded is the amount of a good that
buyers are willing and able to purchase.
•Law of Demand
The law of demand states that, other things
equal, the quantity demanded of a good falls
when the price of the good rises.

4. •Demand Schedule
•The demand schedule is a table that shows the
relationship between the price of the good and
the quantity demanded.

5. Demand Curve
The demand curve is a graph of the
relationship between the price of a good and
the quantity demanded.
 Market demand refers to the sum of all
individual demands for a particular good or
service.
Change in Quantity Demanded “Movement of
demand curve”
 Movement along the demand curve.
 Caused by a change in the price of the
product.

6. Market demand

7. 0
D
Price of Ice-
Cream
Cones
Quantity of Ice-Cream Cones
A
B
8
1.00
$2.00
4

8. Factors determining the quantity demanded
• Consumer income
• Prices of related goods
• Tastes
• Expectations
• Number of buyers.
• And so on

9. Copyright©2003 Southwestern/Thomson Learning
Price of
Ice-Cream
Cone
Quantity of
Ice-Cream Cones
Increase
in demand
Decrease
in demand
Demand curve, D3
Demand
curve, D1
Demand
curve, D2
0
Shifting demand curve

10. Elasticity
• Types of Elasticity:
1. Price elasticity
2. Income elasticity
3. Cross elasticity

11. 1.Types of price elasticity of demand
Inelastic Demand
Percentage change in price is greater than percentage
change in quantity demand.
Price elasticity of demand is less than one.
Elastic Demand
Percentage change in quantity demand is greater than
percentage change in price.
Price elasticity of demand is greater than one.

12. Unit Elastic
When percentage change in price equal to
the percentage change in quantity
demanded.
Unit elastic equal one.
Perfect inelastic
Situation where a change in price doesn’t
lead to change in quantity demanded
Perfect elastic
Situation where a price is constant at any
variation in quantity demanded

13. Perfectly Inelastic Demand
- Elasticity equals 0
Quantity
Price
4
$5
Demand
100
2. ...leaves the quantity demanded unchanged.
1. An
increase
in price...

14. Inelastic Demand
- Elasticity is less than 1
Quantity
Price
4
$51. A 25%
increase
in price...
Demand
10090
2. ...leads to a 10% decrease in quantity.

15. Unit Elastic Demand
- Elasticity equals 1
Quantity
Price
4
$51. A 25%
increase
in price...
Demand
10075
2. ...leads to a 25% decrease in quantity.

16. Elastic Demand
- Elasticity is greater than 1
Quantity
Price
4
$51. A 25%
increase
in price...
Demand
10050
2. ...leads to a 50% decrease in quantity.

17. Perfectly Elastic Demand
- Elasticity equals infinity
Quantity
Price
Demand$4
1. At any price
above $4, quantity
demanded is zero.
2. At exactly $4,
consumers will
buy any quantity.
3. At a price below $4,
quantity demanded is infinite.

18. Income Elasticity of demand
1.Inferior goods: an increase in
income leads to decrease the
demand for inferior goods.
2.Normal goods:
an increase in income leads to
increase the quantity demanded of
normal goods

19. Cross Elasticity of Demand
1.Complementary goods: increase in
price of petroleum will decrease the
demand of cars.
2. Substitute goods: increase in price of
coca cola will increase the quantity
demanded of Pepsi.

20. Supply
• The amount of a good, service, or resource that
people are willing and able to sell during a
specified period at a specified price.
The Law of Supply
Other things remaining the same,
•If the price of a good rises, the quantity supplied
of that good increases.
•If the price of a good falls, the quantity supplied
of that good decreases.

21. Supply schedule
A list of the quantities supplied at each different price when all
other influences on selling plans remain the same.
Supply curve
A graph of the relationship between the quantity supplied and
the price of the good when all other influences on selling plans
remain the same.
• Market supply
The sum of the supplies of all sellers in a market.
The market supply curve is the sum of the supply curves of all the
sellers in the market.

24. Factors determining change in QS
•Availability of factors of production
•Price of commodity
•Price of related goods
•Number of supplier
•And many others

25. Movement of Supply curve
1 5
Price of Ice-
Cream Cone
Quantity of
Ice-Cream
Cones0
S
1.00
A
C
$3.00
A rise in the price of
ice cream cones
results in a
movement along
the supply curve.

26. Shifting Of supply curve
Copyright©2003 Southwestern/Thomson Learning
Price of
Ice-Cream
Cone
Quantity of
Ice-Cream Cones
0
Increase
in supply
Decrease
in supply
Supply curve, S3
curve,
Supply
S1
Supply
curve, S2

27. EQUILIBRIUM
•An equilibrium is the condition that
exists when quantity supplied and
quantity demanded are equal.
•Only in equilibrium is quantity
supplied equal to quantity
demanded.

28. •Equilibrium Price
•The price that balances quantity supplied
and quantity demanded.
•On a graph, it is the price at which the
supply and demand curves intersect.
•Equilibrium Quantity
•The quantity supplied and the quantity
demanded at the equilibrium price.
•On a graph it is the quantity at which the
supply and demand curves intersect.

29. •Excess demand, or shortage of Supply
is the condition that exists when
quantity demanded exceeds quantity
supplied at the current price.
•Excess supply, or shortage of Demand,
is the condition that exists when
quantity supplied exceeds quantity
demanded at the current price.

30. EQUILIBRIUM POINT
A
PriceperDVD
$5.00
4.00
3.50
3.00
2.50
2.00
1.50
1.00
S
D
Quantity of DVDs supplied and demanded
C
Excess demand
1 2 3 4 5 6 7 8 9 10 11 12
Excess supply
E

32. At $2.00, the quantity demanded is
equal to the quantity supplied!
Demand Schedule Supply Schedule

33. The End
Daud Dahir Hassan
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