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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• Diminishing Marginal Utility
LAW OF DEMAND
• Income Effect
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• Diminishing Marginal Utility
LAW OF DEMAND
• Income Effect
• Substitution Effect
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• Diminishing Marginal Utility
• 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
CORN Plot the Points
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
CORN Plot the Points
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
CORN Plot the Points
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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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
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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
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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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