Download Supply and Demand

Demand & Supply
Edited By :- Krishan Jangra
MARKETS DEFINED
POTENTIAL
BUYERS
POTENTIAL
SELLERS
MARKETS
DEMAND DEFINED
P
$5
4
3
2
1
QD
10
20
35
55
80
A schedule or a curve that shows the
various amounts of a product that
consumers are willing and able to
purchase at each of a series of possible
prices.
LAW OF DEMAND
An inverse relationship exists
between price and quantity
demanded
• As Price Falls…
…Quantity Demanded Rises
• As Price Rises…
…Quantity Demanded Falls
LAW OF DEMAND
• Diminishing Marginal Utility
LAW OF DEMAND
• Diminishing Marginal Utility
• Income Effect
LAW OF DEMAND
• Diminishing Marginal Utility
• Income Effect
• Substitution Effect
LAW OF DEMAND
•
•
•
•
•
Diminishing Marginal Utility
Income Effect
Substitution Effect
Demand Curve
Individual and Market
Demand
GRAPHING DEMAND
Price of Corn
P
CORN
P
$5
4
3
2
1
QD
10
20
35
55
80
$5
Plot the Points
4
3
2
1
o
10 20 30 40 50 60 70 80
Quantity of Corn
Q
GRAPHING DEMAND
Price of Corn
P
CORN
P
$5
4
3
2
1
QD
10
20
35
55
80
$5
Plot the Points
4
3
2
1
o
10 20 30 40 5055 60 70 80
Quantity of Corn
Q
GRAPHING DEMAND
Price of Corn
P
CORN
P
$5
4
3
2
1
QD
10
20
35
55
80
$5
Plot the Points
4
3
2
1
o
10 20 30 40 50 60 70 80
35
Quantity of Corn
Q
GRAPHING DEMAND
Price of Corn
P
CORN
P
$5
4
3
2
1
QD
10
20
35
55
80
$5
Plot the Points
4
3
2
1
o
10 20 30 40 50 60 70 80
Quantity of Corn
Q
GRAPHING DEMAND
Price of Corn
P
CORN
P
$5
4
3
2
1
QD
10
20
35
55
80
$5
Plot the Points
4
3
2
1
o
10 20 30 40 50 60 70 80
Quantity of Corn
Q
GRAPHING DEMAND
Price of Corn
P
CORN
P
$5
4
3
2
1
QD
10
20
35
55
80
$5
Connect the Points
4
3
2
1
o
D
10 20 30 40 50 60 70 80
Quantity of Corn
Q
GRAPHING DEMAND
Price of Corn
P
CORN
P
$5
4
3
2
1
QD
10
20
35
55
80
$5
4
3
2
What if
Demand
Increases?
1
o
D
10 20 30 40 50 60 70 80
Quantity of Corn
Q
GRAPHING DEMAND
Price of Corn
Increase
in Quantity
Demanded
P
CORN
P
$5
4
3
2
1
QD
10 30
20 40
35 60
55 80
80 +
$5
4
3
2
1
o
Increase
in
Demand
10 20 30 40 50 60 70 80
Quantity of Corn
D’
D
Q
GRAPHING DEMAND
Price of Corn
P
CORN
P
$5
4
3
2
1
QD
10
20
35
55
80
$5
4
3
2
What if
Demand
Decreases?
1
o
D
10 20 30 40 50 60 70 80
Quantity of Corn
Q
GRAPHING DEMAND
Price of Corn
P
CORN
P
$5
4
3
2
1
QD
10 -20 10
35 20
55 40
80 60
Decrease
in Quantity
Demanded
$5
4
3
2
1
o
Decrease
in
Demand
10 20 30 40 50 60 70 80
Quantity of Corn
D
D’
Q
DETERMINANTS OF
DEMAND
• Tastes
• Number of Buyers
• Income
– Normal (Superior) & Inferior Goods
• Prices of Related Goods
– Substitutes & Complements
– Unrelated Goods
• Expectations
SUPPLY DEFINED
CORN
P QS
Supply is a schedule or a curve showing the
amounts of a product that producers are
willing and able to make available for sale
at each of a series of possible prices.
$1
2
3
4
5
5
20
35
50
60
LAW OF SUPPLY
A direct relationship exists
between price and quantity
supplied
• As Price Rises…
…Quantity Supplied Rises
• As Price Falls…
…Quantity Supplied Falls
GRAPHING SUPPLY
Price of Corn
P
Plot the Points
$5
CORN
P QS
4
$5
4
3
2
1
3
2
1
o 5 10
20 30 40 50 60 70 80
Quantity of Corn
Q
60
50
35
20
5
GRAPHING SUPPLY
Price of Corn
P
Plot the Points
$5
CORN
P QS
4
$5
4
3
2
1
3
2
1
o
10 20 30 40 50 60 70 80
Quantity of Corn
Q
60
50
35
20
5
GRAPHING SUPPLY
Price of Corn
P
Plot the Points
$5
CORN
P QS
4
$5
4
3
2
1
3
2
1
o
10 20 3035 40 50 60 70 80
Quantity of Corn
Q
60
50
35
20
5
GRAPHING SUPPLY
Price of Corn
P
Plot the Points
$5
CORN
P QS
4
$5
4
3
2
1
3
2
1
o
10 20 30 40 50 60 70 80
Quantity of Corn
Q
60
50
35
20
5
GRAPHING SUPPLY
Price of Corn
P
Plot the Points
$5
CORN
P QS
4
$5
4
3
2
1
3
2
1
o
10 20 30 40 50 60 70 80
Quantity of Corn
Q
60
50
35
20
5
GRAPHING SUPPLY
Price of Corn
P
$5
S
CORN
P QS
4
$5
4
3
2
1
3
2
1
o
Connect the Points
10 20 30 40 50 60 70 80
Quantity of Corn
Q
60
50
35
20
5
GRAPHING SUPPLY
Price of Corn
P
$5
4
3
2
S
What if
Supply
Increases?
1
o
10 20 30 40 50 60 70 80
Quantity of Corn
CORN
P QS
$5
4
3
2
1
Q
60
50
35
20
5
GRAPHING SUPPLY
Price of Corn
P
$5
4
3
2
1
Increase
in
Supply
S
S’
CORN
P QS
$5
4
3
Increase 2
in Quantity 1
Supplied
o
10 20 30 40 50 60 70 80
Quantity of Corn
Q
60 80
50 70
35 60
20 45
5 30
GRAPHING SUPPLY
Price of Corn
P
$5
4
3
2
S
What if
Supply
Decreases?
1
o
10 20 30 40 50 60 70 80
Quantity of Corn
CORN
P QS
$5
4
3
2
1
Q
60
50
35
20
5
GRAPHING SUPPLY
Price of Corn Decrease
P
$5
4
3
2
1
o
in
Supply
S’
S
CORN
P QS
$5
4
3
Decrease
2
in Quantity 1
Supplied
10 20 30 40 50 60 70 80
Quantity of Corn
Q
60 45
50 30
35 20
20 0
5 --
DETERMINANTS OF
SUPPLY
• Resource Prices
• Technology
• Taxes & Subsidies
• Prices of Other Goods
• Price Expectations
• Number of Sellers
DETERMINANTS OF
SUPPLY
• Resource Prices
• Technology
Combining
• Taxes & with
Subsidies
• Prices Demand
of Other Goods
• Price Expectations
• Number of Sellers
MARKET DEMAND &
SUPPLY
BUSHELS
OF CORN
P
$5
4
3
2
1
QD
10
20
35
55
80
MARKET
x
200 DEMAND
B 2,000
U
Y
E
R
S
4,000
7,000
11,000
16,000
BUSHELS
OF CORN
P QS
$5
4
3
2
1
60
50
35
20
5
MARKET
200 SUPPLY
S 12,000
x
E
L
L
E
R
S
EQUILIBRIUM
10,000
7,000
4,000
1,000
MARKET DEMAND &
SUPPLY
Price of Corn
CORN
MARKET
P QD
$5 2,000
4 4,000
3 7,000
2 11,000
1 16,000
P
S
$5
CORN
MARKET
P Q
4
Market
S
$5 12,000
Clearing
Equilibrium 4 10,000
3
3 7,000
2 4,000
1 1,000
2
1
o
D
2
4
6
78
10 12 14 16
Quantity of Corn
Q
MARKET DEMAND &
SUPPLY
Price of Corn
CORN
MARKET
P QD
$5 2,000
4 4,000
3 7,000
2 11,000
1 16,000
P
$5
Surplus
CORN
MARKET
S
P Q
At a $4 price
4
$5
supplied than 4
demanded 3
2
1
more is being
3
2
1
o
D
2
4
6
78
10 12 14 16
Quantity of Corn
Q
S
12,000
10,000
7,000
4,000
1,000
MARKET DEMAND &
SUPPLY
Price of Corn
CORN
MARKET
P QD
$5 2,000
4 4,000
3 7,000
2 11,000
1 16,000
P
S
$5
CORN
MARKET
P Q
At a $2 price
4
$5
demanded than 4
3
supplied
2
1
Shortage
more is being
3
2
1
o
D
2
4
6
78
101112 14 16
Quantity of Corn
Q
S
12,000
10,000
7,000
4,000
1,000
MARKET DEMAND &
SUPPLY
Price of Corn
CORN
MARKET
P QD
$5 2,000
4 4,000
3 7,000
2 11,000
1 16,000
P
$5
Surplus
S
4
3
2
Shortage
1
o
CORN
MARKET
P Q
$5
4
3
2
1
D
2
4
6
78
101112 14 16
Quantity of Corn
Q
S
12,000
10,000
7,000
4,000
1,000
MARKET EQUILIBRIUM
•
•
•
•
Equilibrium Price & Quantity
Rationing Function of Prices
Changes in Demand
Changes in Quantity
Demanded
• Changes in Supply
• Changes in Quantity Supplied
Complex Cases
Multiple Shifts…
• Supply Increases;
Demand Decreases
–Prices Decrease
–Quantity Indeterminate
• Supply Decreases;
Demand Increases
–Price Increases
–Quantity Indeterminate
Complex Cases
Multiple Shifts…
• Supply Increases;
Demand Increases
–Prices Indeterminate
–Quantity Increases
• Supply Decreases;
Demand Decreases
–Price Indeterminate
–Quantity Decreases
Government Set Prices
• Price Ceilings
–Shortages
–Rationing Problem
–Black Markets
–Rent Controls
• Price Floors
–Surpluses
Price Ceiling
•A maximum price that sellers may charge for a good,
usually set by government.
•
Excess Demand
(Shortage)
Created by a
Price Ceiling
Price ceiling
• Price Rationing :The process by which the market system
allocates goods and services to consumers when quantity
demanded exceeds quantity supplied.
• Ration coupons Tickets or coupons that entitle
individuals to purchase a certain amount of a given product
per month.
• Black market A market in which illegal trading takes
place at market-determined prices.
•PRICE FLOORS
•Price floor A minimum price
below which exchange is not
permitted.
•Minimum wage A price floor
set under the price of labor.
•Agricultural Products