basic elements of demand & supply

8/13/2019 Basic Elements of Demand & Supply

1/18

BASICELEMENTS

OF DEMAND

AND SUPPLY

Sir Rizwan ul Hassan


2/18


3/18

Law of Demand

If price of a commodity falls, its

quantity demanded increases

and if price rises then quantitydemanded decreases while

other conditions remain same.


4/18

Demand Curve

DEMAND SCHEDULEPairs Price Quantity

Demanded

A 5 200B 10 150C 15 120D 20 100E 25 90

0

5

10

1520

25

30

0 100 200 300

Price

Quantity Demanded

D

D


5/18

Why does law of demand operate?

Income Effect

Substitution Effect

Mathematical expression of law ofdemand

Qd = a ---bP where a is x intercept , b isslope


6/18

Individual & Market

Demand

Quantity demanded of a single

person or a household is called

individual demand. The sum of quantities demanded

of all individual demands in a

particular area is called market

demand.


7/18

Factors affecting

demand

Average income

Population

Price of related goods

Tastes or fashionsSpecial influences


8/18

Shift in Demand

When quantity demanded changes due to

change in any factor affecting demand while

prices remain same is called shift in demand.


9/18

Demand & Quantity Demanded

If demand curve

shifts due to change

in income or fashionor speculation it is

called change in

demand.

If there is changedue to price it is

called change in

quantity demanded


10/18

Meaning of supply

It is the quantity of a commodity which the

producers or sellers are willing to sell at a

given price.

Law of supply The quantity supplied of a commodity

increases when price rises and quantitysupplied decreases when price falls while

other conditions remain same.


11/18

Supply Curve

0

10

20

30

40

50

60

0 500 1000 1500 2000

Price

Quantity Supplied (QS)

S

S

A

B

C

D

E

SUPPLY

SCHEDULEPairs Price QSA 10 0B 20 700C 30 1200D 40 1600E 50 1800


12/18

F Aff i


13/18

Factors Affecting

Supply

Technology

Input prices

Prices of related goods

Government policy

Special influences


14/18

Shift in Supply

When quantity supplied changes due to change in any factor affecting

supply while price remains same it is called shift in supply or change insupply


15/18

Supply & Quantity Supplied

If supply curve shifts forward or backward due

to change in technology or input costs or over

production or it is called change in supply.

If there is movement along the supply curvedue to change in price it is called change in

quantity supplied.


16/18

Market Equilibrium


17/18

Mathematical Equilibrium

If we equalize quantity demanded and

supplied by equation we can determine and

predict any price or quantity demanded or

suppliedQs =Qd or c+dP =abP

C


18/18

Change in Market

Equilibrium

Demand

increases,

price and

quantity

increases

Demand

decreases,

price and

quantity

decreases

Supply

increases,

price

decreases

and quantity

increases

Supply

decreases,

price

increases and

quantity

decreases

basic elements of demand & supply

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