analysis-of-demand-and-supply_compress.pptx

This is all about Applied Economics

1. AN A L Y S I S OF DEMAND AND SU P P L Y

2. WHAT IS THE DIFFERENCE B/W DEMAND AND SUPPLY ? DEMAND S U P P L Y THE AMOUNT OF PRODUCT PEOPLE ARE WILLING TO BUY AT A CERTAIN PRICE REFERS TO WHAT YOU WANT. REPRESENTS HOW MUCH THE MARKET CAN OFFER. HOW MUCH OF SOMETHING IS AVAILABLE.

3. INTRODUCTION The economic problem of scarcity which calls for an allocation mechanism in light of limited resources and expanding human wants. A popular mechanism for allocation being utilized by many economies is the market system. Market system - it is based on the interactions of buyers and sellers of a commodity to determine the price and level of outputs of a good or services.

4. The market system is a powerful tool for allocation because the changes in prices from market transactions create incentives and disincentives on buyers and sellers to address disparities b/w demand and supply. The instrument of allocation is the market price which is determined by the interactions b/w buyers and sellers in any market.

5. WHO IS THE FIRST MAJOR ACTOR IN THE MARKET? CONSUME R PRIMARY OBJECTIVE TO PURCHASE A COMMODITY BACAUSE IT CAN GIVE HIM/HER BENEFITS.

6. What is a demand curve? What is a supply curve? Demand curve is a schedule that shows the level of consumption at alternatives prices at a given point in time while other things held constant. The demand curve of commodity summarizes the benefits derive by the consumers from the purchase of a good/service. Other the hand, the supply curve shows the amount of output producers are willing to sell at alternatives prices at a given point in time. The supply curve incorporates the sacrifices and costs incurred by the seller in producing a commodity.

7. What is a demand curve? What is a supply curve?

8. To the buyer, the price is his payment for the purchase of a commodity. His willingness to purchase the commodity at the market price implies that the additional satisfaction he derives from consumption of the commodity is equivalent to the market price and it is similar to the sellers also, when the suppliers accepts the price as payments for sale of a commodity it implies that the price can compensate for the additional costs incurred in producing a unit of commodity.

9. Thus, the price agreed upon in the market is indicator of marginal benefits to the buyers and at the same time marginal costs to sellers.

10. But then, in the construction of the demand curve it is important to consider not only the willingness to buy but also the capacity to buy. Everyone wants or willing to buy a good but not all is able to buy because some do not have the capacity to buy the good.

11. The demand curve is derived from demand for a commodity since it only reflects the relationship w / quantity demand and the price of the commodity Other things held constant.(CETERIS PARIBUS) OTHER FACRORS THAT MAY AFFECT THE DEMAND FOR THE COMMODITY ARE NOT CHANGING. THE ONLY FACTOR THAT INFLUENCES THE LEVEL OF DEMAND IS THE PRICE OF THE COMMODITY ITSELF.

12. OTHER FACTORS AFFECTING THE DEMAND OF A COMMODITY INCOME For the commodity, the capacity to purchase on the hand influenced by the income of the consumer. A higher level of income will give him limited capacity to consume while the lower income will give him limited purchasing power.

13. PRICES OF OTHER COMMODITIES Aside from the price of the commodity being sold, the demand for a good or service may also be influenced by prices of other goods and services. Although the prices of many commodities may have an effect on the demand of a particular good, the influence of related goods is more pronounced. Substitute Goods and Complementary Goods

14. SUBSTITUTE GOODS BEEF CHICKEN INCREASE INCREASE

15. COMPLEMETARY GOODS SUGAR COFFEE DECREASE INCREASE

16. EXPECTATION Or prospect on what is going to happen to the price can influence the demand for the commodity. Advance mag- isip Example: The tendency of increase of gasoline.

17. TASTE/PREFERENCE Taste is another important factor that may influence the demand for a commodity. The formation of taste is influenced by several factors; cultural values, peer pressure and power of advertising Example: Celebration of New Year’s Eve: round fruits=attract good luck Advertising: Government warning: Cigarette smoking is bad to your health=decreased the demand for cigarette

18. MARKET The size and characteristic of the market can also influence the demand for the commodity. An increasing population can contribute to the expansion of existing markets for various commodities.

19. Why is the demand curve downward slopping? The demand curve shows a negative relationship b/w the price of the goods and the quantity demand. Specifically, as the price of a commodity declines, the quantity demand increases and when the price increases , the quantity demand declines.

20. Substitution and Income Effect The inverse / negative relationship b/w the price and quantity demand can be explained through the substitution and income effect.

21. SUBSTITUTION EFFECT Describes the decision of a consumer to substitute an expensive goods with cheaper goods when there is a price change.

22. Example : Increase in price of mangoes, Substitute: papayas and bananas(cheaper than mangoes) The consequences: decrease in the consumption of mangoes as the price increase.

23. Other example Decrease in price of mobile phones Other goods are relatively expensive Consumer: purchase more mobile phone and less on other goods

24. Income Effect The modification of the consumption of a commodity due to the change in purchasing power of the consumer resulting from the change in price.

25. Purchasing Power Increase of purchasing power More goods to buy

26. Purchasing Power Decrease of purchasing power Less goods to buy

27. Principle of Diminishing Marginal Utility Theoretical explanation of downward slopping demand curve According this major economic principle as a buyer continues to consume a good his total satisfaction or utility increases; however, the additional or marginal satisfaction decreases as a buyer consumes an additional unit of good. This reduction in marginal satisfaction is attributed to the fact that consumers can have a feeling of satisfaction when they continuously increase the consumption of a particular commodity.

28. Diminishing marginal utility implies that the additional satisfaction provided by an additional commodity consumed is lower than the additional satisfaction given by the previous level of consumption of the commodity.

29. Changes in Demand Curve Movement along the demand curve The change in quantity demand resulting from the change in the price of the commodity. Shift in demand curve Changes in demand curve caused by any of the other factors besides the price of the commodity. Taste, price of other goods , income and other factors that may affect the demand of a commodity positively or negatively.

30. Determination of Prices of Commodities

31. Objectives: 1. Understand the concept of supply and demand and its role in determining commodity prices. 2. Identify the key factors that influence the supply of commodities, such as production costs, resource availability, technological advancements, government regulations, and weather conditions. 3. Explore the factors that affect the demand for commodities, including consumer preferences, population growth, income levels, market trends, and availability of substitutes.

32. Guess the Gibberish

33. Game Mechanics: Guess the Gibberish is a popular word-guessing game where players attempt to decipher a phrase or word from a series of nonsensical or scrambled letters.

34. Trial Game: Go who woods Goods

35. 1. Sew who pull lay high Supply

36. 2. Comb peel lay hey me hen tea are he Complementary

37. 3. For how the hack show who own Production

38. 4. Ray saw how hours sheesh Resources

39. 5. Hey can new hoe me he ex Economics

40. 6. More ache heat Market

41. 7. Call owe hone saw more Consumer

42. Factors Affecting Supply production costs availability of resources technological advancements government policies weather conditions

43. 1. Production Costs: The production costs associated with manufacturing or extracting a commodity play a significant role in determining its supply. Higher production costs, such as increased labor expenses, raw material costs, or energy prices, can reduce the profitability of producing a commodity, leading to a decrease in supply.

44. 2. Availability of Resources: The availability and accessibility of key resources needed for commodity production can impact supply. Commodities often require natural resources like minerals, agricultural land, or energy sources. If the availability of these resources is limited or they become scarce, it can constrain production and reduce supply.

45. 3. Technological Advancements: Technological advancements can have a profound impact on the supply of commodities. Innovations in production techniques, machinery, and processes can lead to increased efficiency, lower costs, and higher output. Improved technology can enable producers to extract or manufacture commodities more effectively, thereby expanding supply. Conversely, the absence of technological progress or outdated production methods can limit supply growth.

46. 4. Government Regulations: Government regulations and policies can influence the supply of commodities. Regulations may impose restrictions on production activities, environmental standards, or safety requirements, which can increase costs and reduce supply. Conversely, supportive policies, such as tax incentives or subsidies, can encourage production and boost supply.

47. 5. Weather Conditions: Weather conditions, especially in agricultural and natural resource sectors, can significantly impact commodity supply. Adverse weather events like droughts, floods, or storms can damage crops, disrupt transportation, or hinder extraction activities, leading to reduced supply. Favorable weather conditions, on the other hand, can support abundant harvests or facilitate smooth production processes, increasing commodity supply.

48. Factors Affecting Demand population growth consumer preferences income levels price levels

49. 1. External Factors: Population Growth Several external factors can affect demand. These include factors such as population demographics, changes in the overall economic conditions, government policies, and regulations. For instance, an aging population may lead to increased demand for healthcare and retirement services. Similarly, during an economic downturn, consumers may reduce their spending, leading to a decrease in demand across various industries.

50. 2. Consumer Preferences : Consumer preferences and tastes significantly influence demand. Changes in fashion, trends, and consumer preferences for certain features or attributes can greatly impact demand. For example, if a new study suggests that a particular food product has health benefits, the demand for that product may increase. Additionally, advertising and marketing campaigns can shape consumer preferences and influence demand for specific products.

51. 3. Income Levels The income of consumers plays an important role in determining the demand for goods and services. When individuals' incomes rise, they are more likely to purchase more goods and services, leading to an increase in demand. Conversely, when incomes decrease, demand tends to decline. Some goods are considered normal goods, where demand increases with rising incomes.

52. 4. Price Levels Price is one of the most significant factors affecting demand. Generally, when the price of a product increases, the demand for that product decreases, and vice versa. This relationship is known as the law of demand. However, certain goods, such as luxury items or products with prestigious brand names, may experience an increase in demand as their prices rise, due to their association with status or exclusivity.

53. What is Market Structure? refers to how different industries are classified and differentiated based on their degree and nature of competition for goods and services. It is based on the characteristics that influence the behavior and outcomes of companies working in a specific market.

54. Types of Market Structures

55. 1. Perfect Competition Perfect competition occurs when there is a large number of small companies competing against each other. They sell similar products (homogeneous), lack price influence over the commodities, and are free to enter or exit the market.

56. Significant criticisms under perfect competition: 1. No incentive for innovation: In the real world, if competition exists and a company holds a dominant market share, there is a tendency to increase innovation to beat the competitors and maintain the status quo. However, in a perfectly competitive market, the profit margin is fixed, and sellers cannot increase prices, or they will lose their customers.

57. Significant criticisms under perfect competition: 2. There are very few barriers to entry: Any company can enter the market and start selling the product. Therefore, incumbents must stay proactive to maintain market share.

58. 2. Monopolistic Competition It refers to an imperfectly competitive market with the traits of both the monopoly and competitive market. Sellers compete among themselves and can differentiate their goods in terms of quality and branding to look different. In this type of competition, sellers consider the price charged by their competitors and ignore the impact of their own prices on their competition.

59. 3. Oligopoly An oligopoly market consists of a small number of large companies that sell differentiated or identical products. Since there are few players in the market, their competitive strategies are dependent on each other.

60. 4. Monopoly In a monopoly market, a single company represents the whole industry. It has no competitor, and it is the sole seller of products in the entire market. This type of market is characterized by factors such as the sole claim to ownership of resources, patent and copyright, licenses issued by the government, or high initial setup costs.

61. Thank you for listening!