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Supply and Demand
Supply and Demand
What is supply?
Supply and Demand
▸Supply- quantity of a product or
service that sellers are willing and able
to provide the market at a given price
Supply and Demand
Importance of understanding supply
▸For better understanding of changing
prices
▸Supply influences price
Supply and Demand
Causes for changes in supply
▸Changes in production costs
▸Prices of related goods
▸Number of sellers in the market
▸Future expectations of price
▸Past performances of price
Supply and Demand
Law of Supply
▸Relationship between product supply
and price
Supply and Demand
Supply is not just a single product at a
single price!
Supply and Demand
What is demand?
Supply and Demand
▸Demand- quantity of a product or
service that buyers are able and willing
to purchase from the market at a single
price
Supply and Demand
Factors influencing demand
▸Changes in personal income
▸Prices of related goods
▸Number of buyers in the market
▸Future expectations of price
▸Past performances of price
Supply and Demand
Law of Demand
▸Low prices = More buyers
▸High Prices = Fewer buyers
Supply and Demand
Establishing Price
Through supply and demand price can
be established.
Supply and Demand
Equilibrium price
Definition: quantity supplied equals
quantity demanded
Supply and Demand
Equilibrium price=market price
Supply and Demand
▸Complementary
▸Supplementary
▸Elastic vs. Inelastic
Supply and Demand
Complementary - Definition
▸If an increase in the price of one
product decreases the consumption of
another
Supply and Demand
Complementary
▸Products that are eaten and/or
promoted together
▹Examples: ham and eggs, lettuce and salad
dressing
Supply and Demand
What is Supplementary?
Supply and Demand
Supplementary - Definition
▸A product that does not compete with
another product
Supply and Demand
Supplementary - Definition
▸Products that do not compete with
other products
▹Examples: sheep and wheat production
Supply and Demand
What is Elastic and Inelastic?
Supply and Demand
Elastic - Definition
▸Demand of a product whose use is not
directed by necessity or habit, therefore
has several substitutes
Supply and Demand
Elastic
▸Causes consumers to be more
cautious of price changes
▹Examples: T-bone steaks
Supply and Demand
So what is Inelastic?
Supply and Demand
Inelastic - Definition
▸Products that have a necessity and
very few substitutes
Supply and Demand
Inelastic
▸Consumers must have these items and
are insensitive to price changes
▹Examples: bread, milk
...and we’re done!