1. BAEB602
MICROECONOMICS
CHAPTER 2
DEMAND AND SUPPLY
PREPARED BY:
Nur Suhaili Ramli
School of Marketing and
Entrepreneurship (SoME)
FACULTY OF BUSINESS AND MANAGEMENT

2. CHAPTER 2: DEMAND AND SUPPLY
Learning outcome
TOPIC
 Student able to define theory of demand
 Student able to understand the Law of Demand
 Student able to understand change in quantity demanded versus change in
demand
 Student able to understand factors that influence market demand
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3. CHAPTER 2: DEMAND AND SUPPLY
Theory of Demand
TOPIC
 Definition of demand: the quantity of a good or service that buyers are willing
and able to purchase at different prices in a period of time in a given market
holding other non-price factors constant.
 The Law of Demand: An inverse or negative relationship between the price of a
good and the quantity buyers are willing to buy.
 A demand schedule: It shows the quantity demanded of a product at various
price levels.
 A demand curve: refers to the demand curve of an individual or a consumer or a
buyer.
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4. CHAPTER 2: DEMAND AND SUPPLY
Theory of Demand
TOPIC
 Individual demand curve: It shows the relationship between the price of the
product and the quantity of the product demanded by an individual producer or
seller.
 A market demand: It is derived by summing the quantity demanded horizontally
at each and every price level
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5. CHAPTER 2: DEMAND AND SUPPLY
Change in Quantity Demanded
TOPIC
 Factors:
 Is caused solely by changes in the price of the product itself, cateris paribus.
 Effects:
 It is shown by movements along the same demand curve.
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6. CHAPTER 2: DEMAND AND SUPPLY
Change in Demand
TOPIC
 Factors: Refers to change in the quantity demanded at each possible price and
is changes in factors other than the good’s or product’s own price.
 Effect: It is shown by a shift of the entire demand curve; either to the right or to
the left. An increased in demand is shown by a right ward shift in the whole
demand. A decrease in demand is shown by a leftward shift of the entire
demand curve.
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7. CHAPTER 2: DEMAND AND SUPPLY
Determinants of individual demand
TOPIC
 Income
It is highly depending on the types of the products for example normal product
and inferior product. The effect for both products for the demand curve
 Tastes and Preferences
Tastes and preferences of consumers are influencing by many factors such as
advertising, fads and fashion, the behavior of some popular artists, the
development of the new products.
 The effect of less preferable and more preferable of the consumers to the
demand curve.
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8. CHAPTER 2: DEMAND AND SUPPLY
Determinants of individual demand
TOPIC
 Price of related goods
The price of one product can and does effect the demand for other products.
Two types of goods can either be substitute or complementary goods. Effects of
the product to another product.
 Number of buyers
The demand for a good will vary with the number of buyers. When the number
of buyers increase, the demand for most products will increase.
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9. CHAPTER 2: DEMAND AND SUPPLY
Terms in demands
TOPIC
 Law of demand: the quantity of a good demanded per period of time will
fall as price raises and will rise as price falls, other things being equal.
 Income effect: The effect of a change in price on quantity demanded
arising from the consumer becoming better or worse off as a result of
the price change
 Substitution effect: The effect of a change in price on quantity
demanded arising from the consumer switching to or from alternative
(substitute) products
 Quantity demanded: The amount of a good that a consumer is willing
and able to buy at a given price over a given period of time.
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10. CHAPTER 2: DEMAND AND SUPPLY
Types of goods
TOPIC
 Substitute goods: A pair of goods which are considered by consumers
to be alternatives to each other. As the price of one goes up, the
demand for the other rises.
 Complementary goods: A pair of goods consumed together. As the
price of one goes up, the demand for both goods will fall.
 Normal goods: Goods whose demand increases as consumer income
increase. They have a positive income elasticity of demand. Luxury
goods will have a higher income elasticity of demand than more basic
goods.
 Inferior goods: Goods whose demand decreases as consumer income
increase. Such good have a negative income elasticity of demand.
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11. CHAPTER 2: DEMAND AND SUPPLY
Theory of Supply
TOPIC
 Definition of supply
 The Law of Supply
 Supply Schedule and Supply curve
 Change in quantity supplied versus change in supply
 Factors that influence market supply.
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12. CHAPTER 2: DEMAND AND SUPPLY
Theory of Supply
TOPIC
 Definition of supply: The quantity of a good or service that suppliers are willing
and able to sell at different prices in a period of time in a given market holding
other non-price factors constant.
 The Law of Supply: A direct or positive relationship between the price of a good
and the quantity buyers are willing to buy.
 A supply schedule: A table that shows the relationship between the quantity
supplied of a product at various price levels.
 A supply curve: A curve that shows the relationship between the price of
product and the quantity of the product supplied.
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13. CHAPTER 2: DEMAND AND SUPPLY
Theory of Supply
TOPIC
 Individual supply curve: It shows the relationship between the price of the
product and the quantity of the product supplied by an individual producer or
seller.
 A market demand: It is derived by summing the quantity supplied horizontally at
each and every price level.
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14. CHAPTER 2: DEMAND AND SUPPLY
Change in Quantity Supplied
TOPIC
 Factor:
It is caused solely by changes in the price of product itself.
 Effects:
It is shown by movements along the same supply curve, cateris paribus. It
shows the movement from one point to another point.
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15. CHAPTER 2: DEMAND AND SUPPLY
Change in Supply
TOPIC
 Factors:
It refers to a change in the quantity supplied at each possible price and is
caused by changes in factors other that the price.
 Effects:
It is shown by shifts of the entire supply curve, either to the right or to the left.
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16. CHAPTER 2: DEMAND AND SUPPLY
Determinants of Individual Supply
TOPIC
 Number of sellers:
The larger the number of suppliers, the greater the market supply is, then the
supply curve will shift to the right. The smaller the number of firms in the
industry, the lesser is the market supply, and the supply curve shifts to the left.
 Technology
It is defined as the skills and technology concerning the use of resources in
production. If there is a more advanced technology the ability to produce output
will increased and therefore the supply curve will be increased.
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17. CHAPTER 2: DEMAND AND SUPPLY
Equilibrium
TOPIC
 Market clearing: A market clears when supply matches demand, leaving
no shortage or surplus.
 Equilibrium price: The price where the quantity demanded equals the
quantity supplied: the price where there is no shortage or surplus.
 Equilibrium: A position of balance. A position from which there is no
inherent tendency to move away.
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18. CHAPTER 2: DEMAND AND SUPPLY
QUIZ
TOPIC
1. Differentiate Macroeconomics and Microeconomics.
2. Identify “needs” and “wants”.
3. Provide 3 examples for “need” and 3 examples for “wants”
4. List down three (3) assumptions about market participants.
5. What is opportunity cost?
6. Identify three (3) main categories of resources.
7. What is Mixed Market Economy?
8. What is demand?
9. What is supply?
10. What is equilibrium?
Full name:
Student ID:
Class code:
Submission: Before leaving class.
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