Materi Dosen Pengantar Ekonomi: Dr Saparuddin Mukhtar, M.Si

1. The Market Forces of
Supply and Demand
Chapter 4

2. Markets
A market is a group of buyers and sellers
of a particular good or service.
The terms supply and demand refer to the
behavior of people . . . as they interact
with one another in markets.
And Economics, especially
Microeconomics is about how supply and
demand interact in markets.

3. Market Types or Structures
Competitive Markets
Products are the same,price takers
Monopoly
Monopolistic Competition
Oligopoly

4. Demand Curve
$3.0
0
2.50
2.00
1.50
1.00
0.50
21 3 4 5 6 7 8 9 10 1211
Price of
Ice-Cream
Cone
Quantity of
Ice-Cream
Cones
0

5. Why does the Demand
Curve Slope Downward?
Law of Demand
Inverse relationship between price and
quantity.
Law of Diminishing Marginal Utility.
Utility is the extra satisfaction that one
receives from consuming a product.
Marginal means extra.
Diminishing means decreasing.

6. Market Demand
Market demand refers to the sum of
all individual demands for a
particular good or service.
Graphically, individual demand
curves are summed horizontally to
obtain the market demand curve.

7. Ceteris Paribus
Ceteris paribus is a Latin phrase that
means all variables other than the
ones being studied are assumed to be
constant. Literally, ceteris paribus
means “other things being equal.”
The demand curve slopes downward
because, ceteris paribus, lower prices
imply a greater quantity demanded!

8. Two Simple Rules for
Movements vs. Shifts
Rule One
When an independent variable changes and that
variable does not appear on the graph, the curve on
the graph will shift.
Rule Two
When an independent variable does appear on the
graph, the curve on the graph will not shift, instead
a movement along the existing curve will occur.
Let’s apply these rules to the following cases of
supply and demand!

9. Change in Quantity Demanded
versus Change in Demand
Change in Quantity Demanded
Movement along the demand curve.
Caused by a change in the price of
the product.

10. Changes in Quantity
Demanded
0
D1
Price of
Cigarettes
per Pack
Number of Cigarettes
Smoked per Day
A tax that raises the
price of cigarettes
results in a movement
along the demand
curve.
A
C
20
2.00
$4.0
0
12

11. Change in Quantity Demanded
versus Change in Demand
Change in Demand
A shift in the demand curve, either
to the left or right.
Caused by a change in a
determinant other than the price.

12. Determinants of Demand
Market price
Consumer income
Prices of related goods
Tastes
Expectations
What are some examples?

13. Consumer Income
Normal Good
$3.0
0
2.50
2.00
1.50
1.00
0.50
21 3 4 5 6 7 8 9 10 1211
Price of
Ice-Cream
Cone
Quantity of
Ice-Cream
Cones
0
Increase
in demand
An
increase in
income...
D1
D2

14. Consumer Income
Inferior Good
$3.0
0
2.50
2.00
1.50
1.00
0.50
21 3 4 5 6 7 8 9 10 1211
Price of
Ice-Cream
Cone
Quantity of
Ice-Cream
Cones
0
Decrease
in demand
An
increase in
income...
D1D2

15. Prices of Related Goods
Substitutes & Complements
When a fall in the price of one good
reduces the demand for another good,
the two goods are called substitutes.
When a fall in the price of one good
increases the demand for another
good, the two goods are called
complements.

16. Change in Quantity Demanded
versus Change in Demand
Variables that
Affect Quantity
Demanded
A Change in
This Variable . . .
Price Represents a movement
along the demand curve
Income Shifts the demand curve
Prices of related
goods
Shifts the demand curve
Tastes Shifts the demand curve
Expectations Shifts the demand curve
Number of
buyers
Shifts the demand curve

17. Supply Curve
$3.0
0
2.50
2.00
1.50
1.00
0.50
21 3 4 5 6 7 8 9 10 1211
Price of
Ice-Cream
Cone
Quantity of
Ice-Cream
Cones
0

18. Law of Supply
The law of supply states that there is a
direct (positive) relationship between
price and quantity supplied.

19. Supply
Quantity supplied is the amount of a
good that sellers are willing and able
to sell.

20. Change in Quantity Supplied
1 5
Price of
Ice-Cream
Cone
Quantity of
Ice-Cream
Cones
0
S
1.00
A
C
$3.0
0
A rise in the price
of ice cream cones
results in a
movement along
the supply curve.

21. Market Supply
Market supply refers to the sum of
all individual supplies for all sellers
of a particular good or service.
Graphically, individual supply
curves are summed horizontally to
obtain the market supply curve.

22. Determinants of Supply
Market price
Input prices
Technology
Expectations
Number of producers
What are some examples?

23. Change in Supply
Price of
Ice-Cream
Cone
Quantity of
Ice-Cream
Cones
0
S1 S2
S3
Increase in
Supply
Decrease
in Supply

24. Change in Quantity Supplied
versus Change in Supply
Variables that
Affect Quantity Supplied A Change in This Variable . . .
Price Represents a movement along
the supply curve
Input prices Shifts the supply curve
Technology Shifts the supply curve
Expectations Shifts the supply curve
Number of sellers Shifts the supply curve

25. Supply
Demand
Price of
Ice-Cream
Cone
Quantity of
Ice-Cream
Cones
Equilibrium of
Supply and Demand
21 3 4 5 6 7 8 9 10 12110
$3.0
0
2.50
2.00
1.50
1.00
0.50
Equilibrium

26. Price of
Ice-Cream
Cone
Quantity of
Ice-Cream
Cones
21 3 4 5 6 7 8 9 10 12110
$3.0
0
2.50
2.00
1.50
1.00
0.50
Supply
Demand
Surplus
Excess Supply

27. Excess Demand
Quantity of
Ice-Cream Cones
Price of
Ice-Cream
Cone
$2.00
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Supply
Demand
$1.50
Shortage

28. Three Steps To Analyzing
Changes in Equilibrium
Decide whether the event shifts the
supply or demand curve (or both).
Decide whether the curve(s) shift(s) to
the left or to the right.
Examine how the shift affects
equilibrium price and quantity.

29. How an Increase in Demand
Affects the Equilibrium
Price of
Ice-Cream
Cone
2.00
0 7 Quantity of
Ice-Cream Cones
Supply
Initial
equilibrium
D1
1. Hot weather increases
the demand for ice cream...
D2
2. ...resulting
in a higher
price...
$2.50
10
3. ...and a higher
quantity sold.
New equilibrium
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.

30. S2
How a Decrease in Supply Affects
the Equilibrium
Price of
Ice-Cream
Cone
2.00
0 1 2 3 4 7 8 9 11 12 Quantity of
Ice-Cream Cones
13
Demand
Initial equilibrium
S1
10
1. An earthquake reduces
the supply of ice cream...
New
equilibrium
2. ...resulting
in a higher
price...
$2.50
3. ...and a lower
quantity sold.