Transcript
DYNAMICS OF MARKETS
DEMAND AND SUPPLY (grade 10)
L. MGAGA 201244296
Introduction The following slides are the compilation of different slides from five different authors about the topic Demand and Supply.
Authors : Ankit Bist
Ujjwal 'Shanu‘
KASBIT
Jiten Sharma
NepDevWiki
Topics:
• Demand
Define demand
Law of demand
Demand Schedule (elasticity of demand)
Factors Affecting Demand curve (graphs)
Markets equilibrium
• Supply
Define supply
Law of supply
Supply Schedule
Factors Affecting Supply curve (graphs)
Elasticity
DemandDefinition: The amount of a particular economic good or service that a consumer or group of consumers will want to purchase at a given price
•Law of demand :States that a quantity of a good demanded during a given period relates inversely to its price, other things constant.
•Price increases Quantity Demanded decreases
•Price decreases Quantity demanded increases
•Creates a downward sloping demand curve
Demand Schedule
Point Price [Rs per unit]Quantity demanded of X
[kg. per month]
abcdef
0.501.00
2.002.50
1.50
7.0
3.52.5
3.00
5.0
1.01.5
1 2 3
0.50
1.00
2.00
Quantity of X
Pric
e o
f X
3.00
2.50
654 7
Demand Curve
a
b
c
e
d
f
1.50
Demand schedule
Elasticity of demand
Factors effecting demand curve
(movements and shifts along the curve)
1. Change in taste
2. Prices of other goods
• Substitute
• Complement
3. Income
4. Government rules and regulation
1.Changes in taste (shift in demand)
• Consumers prefer platform shoes.
• At $50, demand increases from 100 to 200.
D
$50
100
D2
200
2.2.1Change in Prices of other goods (substitute)
Suppose the two cold drinks coke and Pepsi are substitutes
E.g.: Price of coke increases, demand of Pepsi increases
D2D
Quantity (Pepsi)
Pric
e
Increase in demand
2.2.Change in Prices of other goods
(Complements)
DD1
Quantity (sugar)P
rice
Suppose tea and sugar are complements(they work together)
E.g.: Price of tea increases, demand of sugar decreases
Decrease in demand
3.Change in Income
D2
D
Quantity XP
rice
Increase in demandThe increase in income increases the quantity of goods demanded (demand increases shifts rightward)
4.Change in Government Regulation (Sales tax)
D1
Quantity X
Pric
e
Decrease in demand
SUPPLY:• Definition: The total amount of a
good or service available for purchase; along with demand, one of the two key determinants of price.
Law of supply: If demand is held constant, an increase in supply leads to a decreased price, while a decrease in supply leads to an increased price.
Supply ScheduleThe increase in price increases the quantity
supplied, e.g. price increase from 2 to 4 an quantity increases from 3 to .
Factors that effect the Supply curve
• Technology
• Changes in prices of Alternative Goods
• Changes in Relevant Resources
• Changes in the Number of Producers
• Changes in Producers Expectations
1.Changes in technology• Technology is the economy’s stock of
knowledge about how to combine resources efficiently
Improvements in technologyCauses an increase in supply
More of the product is available at all prices
Changes in prices of Alternative Goods• Alternative goods
• Other goods that use some or all of the same resources as the good in question
• Beef and leather.
• If the price of beef decreases, producers will supply less beef thus decreasing the supply of leather.
400300
$6
S1
Above is the market for the supply of leather
Q Leather
Price
Changes in Relevant Resources
• Resources that are employed in the production of the good in question
• Increase in price of resources
• Results in decrease in supply
• Less of the good is available at all prices
$9
500 600
S1
S2
Changes in the Number of Producers
• As the number of producers change so does the supply of the product
• A decrease in the number of producers will lead to a decrease in supply
Changes in Producers Expectations
• Expectation of future prices of resources or their own product can cause producers to change what they offer at each individual price
Demand, Supply & Market equilibrium
Market Equilibrium• Market
• Includes all the arrangements used to buy and sell
• Reduce transaction costs
• The place where buyers and sellers meet to determine price and quantity
Equilibrium• At specific price
where:
Quantity Quantity demandeddemanded
EqualsEquals
Quantity SuppliedQuantity Supplied
S
D
Q
P
$5
150
Equilibrium
Surplus
When price > equilibrium price, then quantity supplied > quantity demanded.
•There is excess supply or a surplus. •Suppliers will lower the price to increase sales, thereby moving toward equilibrium.
Shortage
When price < equilibrium price, then quantity demanded > the quantity supplied.
•There is excess demand or a shortage. •Suppliers will raise the price due to too many buyers chasing too few goods, thereby moving toward equilibrium.
EQUILIBRIUM SHORTAGE VS SURPLUS
SP
Q
5
4
3
2
1
2 4 6 8 10 12 14 16
Price of quantity
Quantity
Shortage
EQUILIBRIUM- shortage
S
P
Q
5
4
3
2
1
2 4 6 8 10 12 14 16
D
Quantity
Surplus
EQUILIBRIUM- surplusExtent to which generation of
goods, services, and resources
(such as capital) exceeds their
consumption is called surplus.
Summary of demand, supply &equilibrium
Change in Supply
Change in Demand
Effect on Equilibrium
Price
Effect on Equilibrium
Quantity
Increase Decrease Decrease Indeterminate
Decrease Increase Increase Indeterminate
Increase Increase Indeterminate Increase
Decrease Decrease Indeterminate Decrease
References • Ankit Bist (2011) DEMAND AND SUPPLY at
http://www.slideshare.net/AnkitBist/demand-and-supply-10629356?qid=94fd494d-bed6-4867-a65f-f0d7a1e25582&v=default&b=&from_search=4
• Ujjwal Shanu (2013) DEMAND AND SUPPLY at http://www.slideshare.net/ujjmishra1/demand-and-supply-28840569?qid=94fd494d-bed6-4867-a65f-f0d7a1e25582&v=default&b=&from_search=8
• KASBIT (2011) Basic elements of supply and demand, at http://www.slideshare.net/imranbashir69/basic-elements-of-supply-and-demand
• Jiten Sharma (2012) demand and supply at http://www.slideshare.net/JitenSharma1/demand-supply-market-equilibrium-15222434
• NepDevWiki (2012) 05 price elasticity of demand and supply at http://www.slideshare.net/NepDevWiki/05-price-elasticity-of-demand-and-supply
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