221619_633848897589816250 (2)

8/3/2019 221619_633848897589816250 (2)

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Demand & Supply

Edited By :- Krishan Jangra

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MARKETS DEFINED

MARKETS

POTENTIAL

SELLERS

POTENTIAL

BUYERS

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$5

43

2

1

DEMAND DEFINED

P QD

10

2035

55

80

A schedule or a curve that shows the

various amounts of a product that

consumers are willing and able topurchase at each of a series of possible

prices.

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LAW OF DEMAND

• As Price Falls…

…Quantity Demanded Rises

• As Price Rises…

…Quantity Demanded Falls

An inverse relationship exists between price and quantity

demanded

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• Diminishing Marginal Utility

LAW OF DEMAND

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LAW OF DEMAND

• Income Effect

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LAW OF DEMAND

• Income Effect

• Substitution Effect

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• Income Effect

• Substitution Effect

LAW OF DEMAND

• Demand Curve

• Individual and MarketDemand

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GRAPHING DEMAND

P

Qo

$5

4

3

2

1

P QD

$5

43

2

1

10

2035

55

80

Price of Corn

Quantity of Corn

CORN Plot the Points

10 20 30 40 50 60 70 80

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55

P

Qo

$5

4

3

2

1

P QD

$5

43

2

1

10

2035

55

80

Price of Corn

Quantity of Corn


10 20 30 40 50 60 70 80

GRAPHING DEMAND

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35

P

Qo

$5

4

3

2

1

P QD

$5

43

2

1

10

2035

55

80

Price of Corn

Quantity of Corn


10 20 30 40 50 60 70 80

GRAPHING DEMAND

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P

Qo

$5

4

3

2

1

P QD

$5

43

2

1

10

2035

55

80

Price of Corn

Quantity of Corn


10 20 30 40 50 60 70 80

GRAPHING DEMAND

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P

Qo

$5

4

3

2

1

P QD

$5

43

2

1

10

2035

55

80D

Price of Corn

Quantity of Corn

CORN

10 20 30 40 50 60 70 80

What if

DemandIncreases?

GRAPHING DEMAND

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P

Qo

$5

4

3

2

1

P QD

$5

43

2

1D

Price of Corn

Quantity of Corn

CORN

10 20 30 40 50 60 70 80

D’

Increase

in Demand

Increase in Quantity

Demanded 10

2035

55

80

30

4060

80

+

GRAPHING DEMAND

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P

Qo

$5

4

3

2

1

P QD

$5

43

2

1

10

2035

55

80D

Price of Corn

Quantity of Corn

CORN

10 20 30 40 50 60 70 80

What if

DemandDecreases?

GRAPHING DEMAND

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P

Qo

$5

4

3

2

1

P QD

$5

43

2

1

10

2035

55

80D

Price of Corn

Quantity of Corn

CORN

10 20 30 40 50 60 70 80

--

1020

40

60

D’

Decrease

in Demand

Decrease in Quantity

Demanded

GRAPHING DEMAND

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DETERMINANTS OF

DEMAND• Tastes• Number of Buyers

•

Income – Normal (Superior) & Inferior Goods

• Prices of Related Goods –

Substitutes & Complements – Unrelated Goods

• Expectations

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SUPPLY DEFINED

$1

23

4

5

P QS CORN

Supply is a schedule or a curve showing the

amounts of a product that producers arewilling and able to make available for sale

at each of a series of possible prices.

5

2035

50

60

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5

P

Qo

$5

4

3

2

1

10 20 30 40 50 60 70 80

$5

43

2

1

60

5035

20

5

P QS

Price of Corn

Quantity of Corn

CORN

Plot the Points

GRAPHING SUPPLY

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P

Qo

$5

4

3

2

1

10 20 30 40 50 60 70 80

$5

43

2

1

60

5035

20

5

P QS

Price of Corn

Quantity of Corn

CORN

Plot the Points

GRAPHING SUPPLY

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35

P

Qo

$5

4

3

2

1

10 20 30 40 50 60 70 80

$5

43

2

1

60

5035

20

5

P QS

Price of Corn

Quantity of Corn

CORN

Plot the Points

GRAPHING SUPPLY

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P

Qo

$5

4

3

2

1

10 20 30 40 50 60 70 80

$5

43

2

1

60

5035

20

5

P QS

Price of Corn

Quantity of Corn

CORN

Plot the Points

GRAPHING SUPPLY

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SP

Qo

$5

4

3

2

1

10 20 30 40 50 60 70 80

$5

43

2

1

60

5035

20

5

P QS

Price of Corn

Quantity of Corn

CORN

Connect the Points

GRAPHING SUPPLY

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SP

Qo

$5

4

3

2

1

10 20 30 40 50 60 70 80

$5

43

2

1

60

5035

20

5

P QS

Price of Corn

Quantity of Corn

CORN

What if

Supply

Increases?

GRAPHING SUPPLY

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SP

Qo

$5

4

3

2

1

10 20 30 40 50 60 70 80

Price of Corn

Quantity of Corn

$5

43

2

1

60

5035

20

5

P QS CORN

80

7060

45

30

S’ Increase in

Supply

Increase

in Quantity

Supplied

GRAPHING SUPPLY

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SP

Qo

$5

4

3

2

1

10 20 30 40 50 60 70 80

$5

43

2

1

60

5035

20

5

P QS

Price of Corn

Quantity of Corn

CORN

What if

Supply

Decreases?

GRAPHING SUPPLY

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SP

Qo

$5

4

3

2

1

10 20 30 40 50 60 70 80

$5

43

2

1

60

5035

20

5

P QS

Price of Corn

Quantity of Corn

CORN

S’

45

3020

0

--

Decrease

in Supply

Decrease

in Quantity Supplied

GRAPHING SUPPLY

DETERMINANTS OF

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DETERMINANTS OF

SUPPLY• Resource Prices

• Technology

• Taxes & Subsidies

• Prices of Other Goods

• Price Expectations

• Number of Sellers

DETERMINANTS OF

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DETERMINANTS OF

SUPPLY• Resource Prices

• Technology

• Taxes & Subsidies

• Prices of Other Goods

• Price Expectations

• Number of Sellers

Combining

with

Demand

MARKET DEMAND &

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MARKET DEMAND &

SUPPLY

$5

43

2

1

10

2035

55

80

$5

43

2

1

60

5035

20

5

200

B

U

Y

E

R

S

P QD

BUSHELSOF CORN

MARKET

DEMAND

2,000

4,0007,000

11,000

16,000

200

S

E

L

L

E

R

S

12,000

10,0007,000

4,000

1,000

P QS

BUSHELSOF CORN

MARKET

SUPPLY

EQUILIBRIUM

x x

MARKET DEMAND &

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7

SP

Qo

$5

4

3

2

1

2 4 6 8 10 12 14 16

P QD

$5

43

2

1

2,000

4,0007,000

11,000

16,000

$5

43

2

1

12,000

10,0007,000

4,000

1,000D

P Q

S

Price of Corn

Quantity of Corn

CORNMARKET

CORNMARKET

Market

Clearing Equilibrium

MARKET DEMAND &

SUPPLY

MARKET DEMAND &

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7

SP

Qo

$5

4

3

2

1

2 4 6 8 10 12 14 16

P QD

$5

43

2

1

2,000

4,0007,000

11,000

16,000

$5

43

2

1

12,000

10,0007,000

4,000

1,000D

P Q

S

Price of Corn

Quantity of Corn

CORNMARKET

CORNMARKETSurplus

At a $4 price

more is being

supplied than

demanded

MARKET DEMAND &

SUPPLY

MARKET DEMAND &

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117

SP

Qo

$5

4

3

2

1

2 4 6 8 10 12 14 16

P QD

$5

43

2

1

2,000

4,0007,000

11,000

16,000

$5

43

2

1

12,000

10,0007,000

4,000

1,000D

P Q

S

Price of Corn

Quantity of Corn

CORNMARKET

CORNMARKET

At a $2 price

more is being

demanded than

supplied

Shortage

MARKET DEMAND &

SUPPLY

MARKET DEMAND &

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117

SP

Qo

$5

4

3

2

1

2 4 6 8 10 12 14 16

P QD

$5

43

2

1

2,000

4,0007,000

11,000

16,000

$5

43

2

1

12,000

10,0007,000

4,000

1,000D

P Q

S

Price of Corn

Quantity of Corn

CORNMARKET

CORNMARKET

Shortage

MARKET DEMAND &

SUPPLY

Surplus

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MARKET EQUILIBRIUM

• Equilibrium Price & Quantity• Rationing Function of Prices

•

Changes in Demand• Changes in Quantity

Demanded

• Changes in Supply

• Changes in Quantity Supplied

C l C

http://highered.mcgraw-hill.com/sites/0072819359/student_view0/chapter3/interactive_graphs.html

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Complex Cases

• Supply Increases;Demand Decreases – Prices Decrease – Quantity Indeterminate

• Supply Decreases;

Demand Increases – Price Increases – Quantity Indeterminate

Multiple Shifts…

C l C

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Complex Cases

• Supply Increases;Demand Increases – Prices Indeterminate – Quantity Increases

• Supply Decreases;

Demand Decreases – Price Indeterminate – Quantity Decreases

Multiple Shifts…

G t S t P i

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Government Set Prices

•

Price Ceilings – Shortages

–

Rationing Problem – Black Markets

– Rent Controls

• Price Floors – Surpluses

P i C ili

http://highered.mcgraw-hill.com/sites/0072819359/student_view0/chapter3/interactive_graphs.html

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Price Ceiling

•A maximum price that sellers may charge for a good,

usually set by government.

• Excess Demand

(Shortage)

Created by a

Price Ceiling

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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 entitleindividuals 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

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•PRICE FLOORS

•Price floor A minimum price

below which exchange is not

permitted.

•

Minimum wage A price floorset under the price of labor.

•Agricultural Products

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