All Rights ReservedMicroeconomics © Oxford University Press Malaysia, 2008 2– 1.

All Rights ReservedMicroeconomics© Oxford University Press Malaysia, 2008

2– 1


2– 2

Demand and Supply2CHAPTER


2– 3

DEFINITION OF DEMAND

Demand is defined as the ability and

willingness to buy specific quantities

of goods in a given period of time at a

particular price, ceteris paribus.


2– 4

LAW OF DEMAND

Law of demand states that the higher the price of a good, the lower the quantity

demanded for that good and lower the price, quantity demanded is higher, ceteris paribus.

P QDD P QDD

NEGATIVE RELATIONSHIP


2– 5

DEMAND SCHEDULE AND DEMAND CURVE

Price Quantity

9.0 2

8.5 4

8.0 6

7.5 8

7.0 10

Demand Schedule

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1012

2 4 6 8 10

DD

Demand Curve

D

D


2– 6

INDIVIDUAL AND MARKET DEMAND

INDIVIDUAL DEMAND

The relationship between the quantity of a good demanded by a single individual and its price.

MARKET DEMAND

The relationship between the total quantity of a good demanded by adding all the quantities

demanded by all consumers in the market and its price.


2– 7

CHANGE IN QUANTITY DEMANDED CHANGE IN DEMAND

DD1

Movement along the demand curve Price changes and other factors are constant Upward movement: Decrease in quantity

demanded (contraction) Downward movement: Increase in quantity

demanded (expansion)

Shift in the demand curve

Occurs when changes in other factors and price remains constant

Increase in demand (DD0 DD1 )

Decrease in demand (DD1 DD0 )

DD Quantity

Price

DD0Quantity

Price

CHANGES IN DEMAND AND QUANTITY DEMANDED


2– 8

Festive Seasons and

Climate

Festive Seasons and

Climate

Price of Related Goods


Consumers’ Income

Consumers’ Income Tastes and

FashionsTastes and Fashions

Population or Number of

Buyers

Population or Number of

Buyers

ExpectationExpectationAdvertisementAdvertisement

THE DETERMINANTS OF DEMAND


2– 9

Exceptional demand is against the Law of Demand where as price increases, demand will also

increase and vice versa

EMERGENCIES

SPECULATION

STATUS SYMBOL GODS

GIFFEN GOODS

EXCEPTIONAL DEMAND


2– 10

Derived demand is the demand for a good which is derived from other goods.

INTERRELATED DEMAND

The demand for a good is also affected by the price of its substitute or complementary goods.

Cross demand can be divided into: joint demand and competitive demand.


2– 11

Supply is defined as theability and willingness to sell or

produce a particular product and services in a given period of time at

particular price, ceterisparibus.

DEFINITION OF SUPPLY


2– 12

LAW OF SUPPLY

Law of supply states that the higher the price of a good, the greater is the quantity supplied for that good and lower the price, quantity supplied is lower, ceteris paribus.

P Qss P Qss

POSITIVE RELATIONSHIP


2– 13

SUPPLY SCHEDULE AND SUPPLY CURVE

Price Quantity

9.0 10

8.5 8

8.0 6

7.5 4

7.0 2

Supply Schedule SupplyCurve

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1 2 3 4 5

SS

S

S


2– 14

INDIVIDUAL AND MARKET SUPPLY

INDIVIDUAL SUPPLY

The relationship between quantity of a product supplied by a single seller and its price.

MARKET SUPPLYThe relationship between total quantity of a product

supplied by adding all the quantities supplied by all sellers in the market and its price.


2– 15

CHANGE IN SUPPLYCHANGE IN QUANTITY SUPPLIED

CHANGES IN QUANTITY SUPPLIED AND CHANGE IN SUPPLY

Movement along the supply curve Price changes and other factors are constant Downward movement: Decrease in quantity

supplied (contraction) Upward movement: Increase in quantity

supplied (expansion)

Shift in the supply curveOccurs when changes in other factors

and price remains constantIncrease in supply (SS0 SS1 ) Decrease in supply (SS1 SS0 )

SSQuantity

Price

SS1

SS0

Quantity

Price


2– 16

Exceptional supply is against the Law of Supply where as price increases, the quantity supplied decreases and vice versa

Income Effect

(Exceptional Supply Curve)

Substitution Effect

EXCEPTIONAL SUPPLY

Wage Rate

Labour4 50 1 2 3 6

15

5

10

20


2– 17



Cost of Production

Cost of Production

ExpectationExpectation

Technological AdvancementTechnological Advancement

Number of Sellers

Number of Sellers

Government Policies

Government Policies

THE DETERMINANTS OF SUPPLY

All Rights ReservedMicroeconomics © Oxford University Press Malaysia, 2008 2– 1.

Documents

definition of demand

quantity price slide

demand schedule

demand curve price changes

quantity price changes

determinants of demand

joint demand

competitive demand