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Supply And Demand
Macroeconomic, ECON 1311
Section- 201
Prince Mohammed University
Nour Alkhalifa 201100184
Dana Almajid 200900731
Reem Alahmed 200900190
Shmayel Alrayes 201100063
Alawiyah Alsadah
1- Supply
- The Definition of supply:
It is the important economic that describes the whole amount of certain good or
service that available to client. Supply can be associated to the available value at a
certain price or the value is available throughout a variety of prices shown on a graph.
This associates intimately to the demand for a good or service at a certain price; all
else being equal. Supply is retired by producers will increase if the price increases
because all firms look to maximize profits.
- The Supply schedule:
It is a table that has values of good prices, and it also has the amount that would
supply at the price. If the data from the table is drown, it will be known as a supply
curve. The schedule instances the alternative amount of exportation supplied at varied
prices. A supply schedule is an easy way of summarizing much information about
supply price and amount supplied for a specific good. It is used to bring out the law of
supply. Deriving a supply curve is used too.
A supply schedule is important and a useful set of information, which sum up some of
the aspects of supply importance.
- The Supply Curve:
The supply curve is a relationship between each possible price of the good and the
quantity that would be supplied for market sale at that price. The supply curve usually
slopes upward, since higher prices give producers an incentive to supply more in the
hope of making greater revenue. In the short run the price-supply tradeoff is greater
than in the long run and an increase in price will usually cause an increase in supply,
but the leading producers can only manage a limited increase.
The purpose of graphing the supply curve is to display quantity supplied on the x-axis
(independent variable) and price on the y-axis (dependent variable). The law of
Supply states that if everything else is the same then the higher the price, the more
quantity produced.
- Low of Supply:
The law of supply is a fundamental principal of economic theory, which is that
quantities respond in the same direction as price changes. In other words, the law of
supply states that (all other things unchanged) an increase in price results in an
increase in quantity supplied. This means that producers are willing to offer more
products for sale on the market at higher prices by increasing production as a way of
increasing profits.
- Determines of supply:
It is define as the elements beside price which determine the available amount of a
products or services. therefore any factor that increases the cost of production will
decrease the supply, and any factor that decreases the cost of production the supply
will increase.
The important factors of supply:
1- Number of producers: If more producers enter a market, the supply will
increase, shifting the supply curve to the right.
2- Recourses Prices: The prices that a producer must pay for its resources
(inputs) influence supply. Resource prices affect the cost of production.
As resource prices increase, the cost of production increases. As a result,
producers must receive higher prices to be willing to produce any given
level of output.
3- Technological changes: Changes in technology usually result in improved
productivity. Increased productivity can reduce the cost of production. A
decrease in the cost of production will increase supply.
4- Prices of Other Products of the Firm: if a firm produces more than one
product, a change in the price of one product can change the supply of
another product.
5- Producer Expectations: Changes in producers' expectations about the
future can cause a change in the current supply of products.
2- Demand
- The definition of demand:
Demand is one of the most basic concepts in the economics. It is a subject that writing
and researching on supply and demand. There are several explanations that defined
the word demand. Unfortunately there is no specific meaning on the demand
definition even though there are many explanations that give clearly understanding on
the meaning of demand. One of them is that demands are principle that describes a
consumer’s desire and willingness to pay a price for a specific good or service.
Holding all other factors constant, the price of a good or service increases as its
demand increases and vice versa. Another definition is the amount or quantity of the
product that the customer is willing to buy at a given price, assuming all other factors
remains unchanged (ceteris paribus). For the economics demand is the relationship
between the quantities of a good or service consumers will purchase and the price
charged for that good. Also demand is an economic measure, which expresses a
desire, as well as the ability to pay for goods and services.
- The demand schedule:
A demand schedule, depicted graphically as the demand curve, represents the amount
of some good that buyers are willing and able to purchase at various prices, assuming
all determinants of demand other than the price of the good in question, such as
income, tastes and preferences, the price of substitute goods. Demand schedule is a
chart that shows the number of single unit's type of good and service with the aim of
potential purchasers will recommend buying at each of varying prices at some period
of time. A short describing can be that is a table or chart like I said of the quantity
demanded of a good at different price levels.
- The demand curve:
The supply curve is a relationship between each possible price of the
good and the quantity that would be supplied for market sale at that price.
The supply curve usually slopes upward, since higher prices give
producers an incentive to supply more in the hope of making greater
revenue. In the short run the price-supply tradeoff is greater than in the
long run and an increase in price will usually cause an increase in supply,
but the leading producers can only manage a limited increase.
- Low of demand:
Law of demand states that there is direct relationship between the price of the
good/services and consumer demand available to get it. Generally people will buy
more when the price of product decrease and when the price increase the postponed or
buy in less quantity or switch to cheaper goods.
- Determines of demand:
The demand of products/services had been affected by number of factors like
1. Product Prices: The basic demand of goods/services is determined by the
prices on which the consumer is willing to buy. The general trend is that when
the price is increase the demand is decrease and when the price is decrease the
demand is increase as this is law of demand effects on products sales.
2. Price of related goods: The price of complementary goods is determining
factors for deciding the principal products. Complement products are those
which is used instead of primary product.Eg: the price of Nescafé Coffee
increase force consumers to switch towards Lipton tea.
3. Change Disposable Income: The Saudi government efforts to increase the
salaries of government employees had enabled them to have disposable
income which facilitates them to buy more quantity that affects the demand of
4. Consumer Tastes and preferences: The consumers taste and preference had
been change in big way specially in electronic products where consumers are
willing to pay more than what the product offered E.g.: Launching of iPhone 5
force consumer to pay more than what the product offered due to consumers
preference to get ahead and do the show off in the society.
5. Consumer expectations: During the Ramadan, consumers feels that the prices
of many products are increase at least by 10% to 15%, so they will buy certain
things in advance to make smart purchasing decisions.
3- Equilibrium:
- Definition of equilibrium:
It is the balance situation between supply and demand, which shortage and surplus
doesn’t exist in the market, and the price is stable. In other words it is the decisions of
buyers interact simultaneously with the decisions of sellers, when the demand of the
good is equal to the supply of good. Whatever, the Associated with the market
equilibrium are the equilibrium quantity and the equilibrium price.
The equilibrium quantity is the quantity for which the quantity demanded of good is
exactly equals the quantity supplied of good.
The equilibrium price is the price for which the quantity demanded of good is exactly
equals the quantity supplied of good.
Therefore, both equilibrium quantity and price called equilibrium analysis.
Equilibrium analysis can be done in two ways; by simultaneously solving the
algebraic equations for demand and supply, and another way by combine he demand
and supply curves in one graph and determine the equilibrium.
The equilibrium point may shift or move when the demand or supply curves change.
The equilibrium loses it balance when it becomes an excess demand or an excess
The excess supply (surplus) is a situation where the amount of the product exceeds the
regular amount in a market, and it is equal the amount of supply minus the amount of
the demand. In other words it is the price above the equilibrium point, which make the
producers unable to sell all they want at the going price.
The excess demand is the situation where the amount of the product less than the
regular amount. In another words, it’s the situation where the price below the
equilibrium point, which make the consumers unable to buy want they want at the
going price.
4- Saudi Arabia as an example:
Saudi Arabia is the largest Arab nation in the Middle East. It has a population of more
than 28 million and has an area of approximately 830,000 square miles. However,
Saudi Arabia’s economy is largely oil based with strong government controls on most
economic activities. As we all know cars, ships, airplanes and many other things can’t
work without using oil, therefore people are going to buy oil, which means the
demand of the oil is high, and it will always be high no matter how the price is
The supply of oil is not stable, and that because the cost of capital expenses of
prospecting and building is equal to the cost of operating an oilfield and produce 50%
of capacity. Therefore, to get the profit and be greater in producing, the price should
increase depending on the demand to reach the equilibrium point, and if a small
changing in the demand will make a big change in the supply curve.
In 1970, Saudi Arabia stopped selling oil to America, which was because of the
supporting that America did to Israel. Whatever this decision has affect both
countries, and it had the effect to change the shape of the supply curve and it was
shifted to the left, which means that there was less supplying of oil and the prices
increased to reach another equilibrium point.
Another example on demand shifting:
The shift of a demand curve of rice takes place when there is a change in any nonprice determinant of demand like weather, festive seasons, resulting in emerging of
new demand curve. On-price determinants of demand like quality of rice, brand of
rice are the things that will cause demand to change even if prices remain the same
There are certain things like in Ramadan, the income change due to increase in
salaries of employed class people or summer vacation times can be factor that
influence the price of the products due to increase in demand from consumers but due
to increase in supply the price will not change significantly. In this example there is
less chance of rice substitute where as people either eat rice or kaboos in the dinner
time. However, rice demand in the Saudi Market is the dependent on Saudi Consumer
willingness and ability to purchase a good quality price under the prevailing local
market circumstances is not determinant factor of deciding factor of rise or decrease
in price.
When the Saudi citizens income rises due to improve economic conditions, the
demand curve for normal goods shifts upward as more quantity is demanded with any
price. And on other side the demand of inferior goods will be lower by shifting of
demand curve towards lower side because consumers shift their taste towards the
superior quality products due to increase in income levels.
For example, The demand curve of inferior goods shifts lower side because of
increase income levels of Saudi nationals and they now start preferring the good
quality superior products like Burger or Chicken Broasted increase the consumers will
shift their demand toward buying fresh chicken and cook at home. So the demand of
fresh chicken shifts upwards and the related products like tomato paste small packs
shifts down as less number of people come to eat burgers or broasted. This is effect of
related products demand shifts related to primary products.
The higher quantity of rice will sell in the markets when the buyers willingly buy
the products at higher prices and sometimes consumes force to buy those products
which is consume something else what they value more. The demand curve is usually
slope downwards while consumers willingly want to buy more as price decrease. And
the demand for goods and services are depend on many factors like substitute prices
and complementary goods.
Increase in Quantity Demanded D…