basic elements of supply and demand
TRANSCRIPT
Basic Elements Of Supply And Demand
Chapter 3
Topics:
Demand Demand Schedule Law of demand Factors Affecting Demand curve Supply Supply Schedule Law of supply Factors Affecting Supply curve
Demand Curve
Price Quantity
5 9
4 10
3 12
2 15
1 20
Demand Curve
05
10152025
0 2 4 6
Quantityp
rice Series1
Factors effect the demand curve
1. Change in taste
2. Prices of other goods
• Substitute
• Complement
4. Income
5. Government rules and regulation
6. Other factors
Change in taste: Advertisement effect our taste
Quantity X
Pric
e
D2
D
Increase in demand
Change in Prices of other goods (substitute)
E.g.: Price of coke increases, demand of Pepsi increases
D2
D
Quantity (Pepsi)
Pric
e
Increase in demand
Change in Prices of other goods (Complement)
DD1
Quantity (sugar)
Pric
e
E.g.: Price of tea increases, demand of sugar decreases Decrease in demand
Change in Income
D2
D
Quantity X
Pric
e
Increase in demand
Change in Government Regulation (Sales tax)
D1
Quantity X
Pric
e
Decrease in demand
Supply:
The supply schedule for a commodity shows the relationship between market price and the amount of that commodity that producers are willing to produce and sell other held constant
Supply Curve
Price Quantity
5 18
4 16
3 12
2 7
1 0
0
1
2
3
4
5
6
0 5 10 15 20
Series1
Technology Input prices Prices of related goods Government policy Special influences
Factors effect the Supply curve
S’
S
Quantity
pric
e
Increase in supply
Quantity
pric
e S’
s
Decrease In Supply
Conti….
Market equilibrium
Shifts in equilibrium
Price Qty supply Qty demand
5 18 9
4 16 10
3 12 12
2 7 15
1 0 20
Equillibruim
0
1
2
3
4
5
6
0 5 10 15 20 25
QuantityPr
ice D
Equillibruim
0
1
2
3
4
5
6
0 5 10 15 20 25
Quantity
Pri
ce
D
Quantity
Pric
e
S
D
Excess Supply or Surplus
3
11
Excess Supply or Surplus
Quantity
Pric
e S
D
Excess Demand
Or shortage
Excess Demand Or shortage
3
11
Quantity
S
D
Price Ceiling
pric
e
Price Control: in which govt. restrict to suppliers and give them limits to charge
In price Ceiling maximum amount restriction
Price Ceiling
3
5
10 15
Quantity
S
D
Price Floor
In price Floor minimum amount restriction
8
5
10 20
pric
ePrice Floor
Demand and supply shift
Effect on price and quantity
If demand rise The demand curve shift to the right
P
Q
If demand Falls The demand curve shift to the left
P
Q
If supply rise The supply curve shift to the right
P
Q
If supply Falls The supply curve shift to the left
P
Q
Demand and supply curve shifts and there effects on price and quantity
Quantity
Pric
e
S
D
D’
Increase in Demand, Rightward shift
Shift in Equilibrium
Quantity
Pric
e
S
D
S’
Increase in supply, Rightward shift