Brief discussion of Demand and Supply

1. B.E MAZIBUKO
201281434
PROFESSIONAL STUDIES 3A

2. DEMAND & SUPPLY
• Demand
• Supply
• Market Equilibrium
• Examples
• Price ceiling/floor

3. DEMAND
• behavior of buyers
• relationship between
• quantity demanded of a good
• price
• holding other factors constant

4. DEMAND
• Behaviour of buyers
• Relationship between
• Quantity demanded of a good
• Price
• Holding other factors constant
Demand and its Determinants:
• A General Definition:
•
Demand is the quantity of a good or resource that
buyers (or demanders) are willing and able to buy under a
given set of conditions
over a given period of time.
Conditions: price, income, taste, prices of related goods,
expected prices, number of buyers, etc.

5. DEMAND
Quantity demanded
is the amount
of a good that buyers are
willing and able
to purchase.

6. DEMAND CURVE
Price of
Goods
$3.00
2.50
•
The demand curve is a graph
illustrating how much of a given
product a household would be willing
to buy at different prices.
P ric e
$ 0 .0 0
0 .5 0
1 .0 0
1 .5 0
2 .0 0
2 .5 0
3 .0 0
2.00
1.50
1.00
Q u a n tity
12
10
8
6
4
2
0
0.50
0 1
2 3 4 5 6 7 8 9 10 11 12
Qd

7. QUANTITY DEMANDED (QD)
• amount of good or service
• unit of measure
• per unit of time
• “2 bottles of water per day”

8. LAW OF DEMAND
If the price of a good
then the Qd
holding other things constant!!!

9. WHY?
• higher price makes you feel poorer
• income effect
• higher price on one good,
substitute other goods.
• substitution effect

10.  individual demand
 demand curve for 1 buyer
 market demand**
 demand curve for all buyers
 add up individual Qd for each
price

11. CHANGE IN QUANTITY
DEMANDED VERSUS CHANGE IN
DEMAND
Change in Quantity Demanded
Movement along the demand curve.
Caused by a change in the price of
product.
the

12. CHANGES IN QUANTITY
DEMANDED
Price of
Cigarettes
per Pack
Rs.4.
00
A tax that raises the
price of cigarettes
results in a movement
along the demand
curve.
C
A
2.00
D1
0
12
20
Number of Cigarettes
Smoked per Day

13. CHANGE IN QUANTITY
DEMANDED VERSUS CHANGE IN
DEMAND
Change in Demand
A shift in the demand curve, either
right.
Caused by a change in a
determinant other than the price.
to the left or

14. CHANGES IN DEMAND
Price of
Ice-Cream
Cone
Increase in
demand
Decrease in
demand
D2
0
D3
D1
Quantity of
Ice-Cream
Cones

15. CHANGE IN QUANTITY
DEMANDED VERSUS CHANGE
IN DEMAND
Variables that
Affect Quantity
Demanded
A Change in
This Variable . . .
Price
Represents a movement
along the demand curve
Income
Shifts the demand curve
Prices of related
goods
Shifts the demand curve
Tastes
Shifts the demand curve
Expectations
Shifts the demand curve
Number of
buyers
Shifts the demand curve

16. TWO SIMPLE RULES FOR MOVEMENTS VS.
SHIFTS
• Rule One
• When an independent variable changes and that variable does not appear on
the graph, the curve on the graph will shift.
• Rule Two
• When an independent variable does appear on the graph, the curve on the
graph will not shift, instead a movement along the existing curve will occur.

17. CONSUMER INCOME
Price of
Ice-Cream
Cone
NORMAL GOOD
Rs.3.00
An increase
in income...
2.50
Increase
in demand
2.00
1.50
1.00
0.50
D1
0 1
2 3 4 5 6 7 8 9 10 11 12
D2
Quantity of
Ice-Cream
Cones

18. CONSUMER INCOME
Price of
Ice-Cream
Cone
INFERIOR GOOD
Rs.3.00
An increase
in income...
2.50
2.00
Decrease
in demand
1.50
1.00
0.50
D2
0 1
D1
2 3 4 5 6 7 8 9 10 11 12
Quantity of
Ice-Cream
Cones

19. IMPORTANT!!
• Change in demand
-- occurs when other factors change
-- shift to a new demand curve
• change in demand
• NOT caused by change in price of
the good

20. SUPPLY
• behavior of sellers
• relationship between
• quantity supplied of a good
• price
• holding other factors constant

21. SUPPLY
Quantity supplied is the amount of a
good that sellers are willing and
able to sell.

22. SUPPLY CURVE
The supply curve is the upwardsloping line relating price to quantity
supplied.

23. Price of
Ice-Cream
Cone
Rs.3.
00
2.50
2.00
1.50
1.00
SUPPLY CURVE
Price
0.00
0.50
1.00
1.50
2.00
2.50
3.00
Quantity
0
0
1
2
3
4
5
0.50
0
1 2 3 4 5 6 7 8 9 10 11 12
Quantity of
Ice-Cream
Cones

24. LAW OF SUPPLY
If the price of a good
then the Qs
holding other things constant!!!

25. WHY?
• Holding costs constant
• higher price means higher profit margin

26. SUPPLY SCHEDULE
The supply schedule is a table that
shows the relationship between the
price of the good and the quantity
supplied.

27. SUPPLY SCHEDULE
Price = $/bottle
Qs = bottles/day
P
$2.00
$1.50
Qs
3
2
$1.00
$.50
1
0

28. CHANGES IN SUPPLY
• if other factors do change,
• change in supply
• shift to a new supply curve

29. CHANGE IN QUANTITY SUPPLIED
VERSUS CHANGE IN SUPPLY
Change in Quantity Supplied
Movement along the supply curve.
Caused by a change in the market price of the
product.

30. CHANGE IN QUANTITY
SUPPLIED
Price of
Ice-Cream
Cone
S
C
Rs.3.
00
A rise in the price
of ice cream cones
results in a
movement along
the supply curve.
A
1.00
0
1
5
Quantity of
Ice-Cream
Cones

31. CHANGE IN QUANTITY SUPPLIED
VERSUS CHANGE IN SUPPLY
Change in Supply
A shift in the supply curve, either to the left or right.
Caused by a change in a determinant other than
price.

32. CHANGE IN SUPPLY
S3
Price of
Ice-Cream
Cone
S1
S2
Decrease in
Supply
Increase in
Supply
0
Quantity of
Ice-Cream
Cones

33. CHANGE IN QUANTITY SUPPLIED VERSUS
CHANGE IN SUPPLY
V ariables that
A ffect Q uantity S upplied
A C hange in This V ariable . . .
P rice
R epresents a m ovem ent along
the supply curve
Input prices
S hifts the supply curve
T echnology
S hifts the supply curve
E xpectations
S hifts the supply curve
N um ber of sellers
S hifts the supply curve

34. MARKETS
A market is a group of buyers and
sellers of a particular good or
service.
The terms supply and demand
refer to the behavior of people . . . as
they interact with one another in

35. MARKETS
 Buyers determine demand.

Sellers determine supply.

36. SUPPLY AND DEMAND
TOGETHER
Equilibrium Price
The price that balances supply and demand. On a
graph, it is the price at which the supply and demand
curves intersect.
Equilibrium Quantity
The quantity that balances supply and demand. On a
graph it is the quantity at which the supply and demand
curves intersect.

37. SUPPLY AND DEMAND
TOGETHER
Demand Schedule
Price
Rs 0
0.50
1.00
1.50
2.00
2.50
3.00
Quantity
19
16
13
10
7
4
1
Supply Schedule
Price
Rs 0
0.50
1.00
1.50
2.00
2.50
3.00
Quantity
0
0
1
4
7
10
13
At Rs.2.00, the quantity demanded is
equal to the quantity supplied!

38. EQUILIBRIUM OF
SUPPLY AND DEMAND
Price of
Ice-Cream
Cone
Supply
Rs.3.
00
2.50
Equilibrium
2.00
1.50
1.00
Demand
0.50
0
1 2 3 4 5 6 7 8 9 10 11 12
Quantity of
Ice-Cream
Cones

39. EXCESS SUPPLY
Price of
Ice-Cream
Cone
Surplus
Rs.3.
00
2.50
Supply
2.00
1.50
1.00
Demand
0.50
0
1 2 3 4 5 6 7 8 9 10 11 12
Quantity of
Ice-Cream
Cones

40. SURPLUS
WHEN THE PRICE IS ABOVE THE EQUILIBRIUM PRICE, THE
QUANTITY SUPPLIED EXCEEDS THE QUANTITY DEMANDED.
THERE IS EXCESS SUPPLY OR A SURPLUS. SUPPLIERS WILL
LOWER THE PRICE TO INCREASE SALES, THEREBY MOVING
TOWARD EQUILIBRIUM.

41. EXCESS DEMAND
Price of
Ice-Cream
Cone
Supply
Rs.2.00
Rs.1.50
Shortage
0
1
2
3
4
5 6
7
Demand
8 9 10 11 12 13
Quantity of
Ice-Cream Cones

42. SHORTAGE
WHEN THE PRICE IS BELOW THE EQUILIBRIUM PRICE, THE
QUANTITY DEMANDED EXCEEDS THE QUANTITY SUPPLIED.
THERE IS EXCESS DEMAND OR A SHORTAGE. SUPPLIERS
WILL RAISE THE PRICE DUE TO TOO MANY BUYERS CHASING
TOO FEW GOODS, THEREBY MOVING TOWARD EQUILIBRIUM.

43. THREE STEPS TO ANALYZING
CHANGES IN EQUILIBRIUM
Decide whether the event shifts the supply or
demand curve (or both).
Decide whether the curve(s) shift(s) to the left or to
the right.
Examine how the shift affects equilibrium price and
quantity.

44. HOW AN INCREASE IN DEMAND
AFFECTS THE EQUILIBRIUM
Price of
Ice-Cream
Cone
1. Hot weather increases
the demand for ice cream...
Supply
Rs.2.50
New equilibrium
2.00
2. ...resulting
in a higher
price...
Initial
equilibrium
D2
D1
0
3. ...and a higher
quantity sold.
7
10
Quantity of
Ice-Cream Cones

45. HOW A DECREASE IN SUPPLY
AFFECTS THE EQUILIBRIUM
Price of
Ice-Cream
Cone
S2
1. Shortage of milk reduces
the supply of ice cream...
S1
New
equilibrium
Rs.2.50
2.00
Initial equilibrium
2. ...resulting
in a higher
price...
Demand
0
1 2 3 4
7 8 9 10 11 12 13
3. ...and a lower
quantity sold.
Quantity of
Ice-Cream Cones

46. REFERENCES
•
Amin Hanif, Chief Executive Officer at The federation of lazy jobless
people (FLJP) on Nov 03, 2011
• itutor on Aug 28, 2013
• MBA CORNER By Babasab Patil (Karrisatte) on Feb 24, 2012