Chapter - 3 - Demand - Supply - Analysis.

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1. ECON 121 Basic Microeconomics Demand & Supply Analysis

2. Demand Demand  is a relation between the price of a good and the quantity that consumers are  willing and able to buy during a given period, other things are constant. While  quantity demanded   is the quantity of a commodity that people are willing to buy at a particular price at a particular point in time.

3. Law of Demand Demand States that a quantity of a good demanded during a given period relates inversely to its price, other things constant . DEMAND PRICE PRICE DEMAND *Ceteris Paribus

4. Demand Schedule - a table listing of the different possible prices of a good or service and the corresponding quantities consumers are willing and able to buy at each price, assuming other factors remain constant Demand Price of Good Quantity Demanded P30 200 P40 150 P50 100 P60 75 P70 50 Table 3.1 Demand Schedule

5. Point on the line that matches the schedule Every point on the line matches the schedule. It is the price/quantity demanded that consumers are willing and able to buy. A curve showing the relation between the price of a good and the quantity demanded. Price Quantity demand P30 P40 P50 P60 Demand P70 50 75 100 150 200 Demand curve Demand Figure 3.1 Demand Curve

6. Individual demand  is the demand for an individual consumer. Market demand is the total quantity demanded by all consumers at different price levels. Two basic types of market demand: Primary and Selective Demand

7. Changes Quantity in Demand Increase in demand At every, each price more of the good is demanded Shifts to the right Point P Qd A P60 100 B P50 150 D1 P50 D2 A B Price Quantity 100 150 P60 Demand Figure 3.2 Increase in demand

8. Decrease in demand At every , each price less of the good is demanded Shifts to the Left Point P Qd A P60 150 B P50 100 Changes Quantity in Demand Figure 3.3 Decrease in demand D2 P50 D1 B A Price Quantity 100 150 P60

9. Shifts in the Demand Curve Determinants of Demand Consumer income Expectation future prices Future price Future Income Prices of related goods Substitute goods Complement goods Occasional/Seasonal Products Consumer tastes Number of Buyers

10. Supply  is a relation between the price of a good and the quantity that the producers are  willing and able to offer   for sale during a given period, other things are constant. Supply Q uantity supplied  is the amount sellers are willing and able to offer for sale at  each possible price  during a particular period, everything else is held constant. 

11. Law of supply The quantity of a good supplied during a given period is usually directly related to the price of the good. Supply SUPPLY PRICE PRICE SUPPLY *Ceteris Paribus Because ↑ Price = ↑Profit

12. Supply Schedule - a tabular depiction of the relationship between price and quantity supplied, represented graphically as a supply curve. Supply Price of Good Quantity Supplied P50 40 P60 75 P70 85 Table 3.2 Supply Schedule

13. Point on the line that matches the schedule Every point on the line matches the schedule. It is a price/quantity supplied that producers are willing and able to offer. A curve showing the relation between the price of a good and the quantity supplied. Supply curve Supply Quantity Price 60 50 70 45 75 85 Figure 3.4 Supply Schedule and Curve

14. Changes Quantity in Supply Increase in Supply At every, each price more of the good is supplied Shifts to the right 400 300 P60 S 1 S 2 P80 A B Price Quantity Point P Qs A P60 300 B P80 400 Figure 3.5 Increase in Supply

15. Changes Quantity in Supply Decrease in Supply At every, each price less of the good is supplied Shifts to the left 300 P60 S 1 S 2 P40 A B Price Quantity 200 Figure 3.6 Decrease in Supply Point P Qs A P60 300 B P40 200

16. Shifts in the Demand Curve Determinants of Demand Consumer income Expectation future prices Future price Future Income Prices of related goods Substitute goods Complement goods Occasional/Seasonal Products Consumer tastes Number of Buyers Shifts in the Supply Curve Determinants of Supply Technology Cost of Inputs Future Price Expectations Price of Related Products Tax and Subsidy Factors outside the economic sphere  Number of Firms

17. Market Equilibrium S D Q P P50 150 Equilibrium Quantity demanded = Quantity supplied Market state where the supply in the market is equal to the demand in the market. Figure 3.7 Market Equilibrium

18. Reaching Equilibrium If market price is ABOVE equilibrium Q s > Q D Economy is at a SURPLUS Market price will fall S D Q P 150 P50 P60 100 200 Surplus Figure 3. 8 Surplus

19. Reaching Equilibrium If the market price is BELOW the equilibrium price Q D > Q s Shortage exists Market price rises to equilibrium S D Q P 150 100 200 P40 P50 Shortage Figure 3.9 Shortage

20. Shift in demand Market equilibrium Demand increases Equilibrium price increases Equilibrium quantity increases S D1 Q P 150 100 200 D2 P40 A B P60 Figure 3.10 Shift in Demand (Increases)

21. Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat. Duis aute irure dolor in reprehenderit in voluptate velit esse cillum dolore eu fugiat nulla pariatur. Shift in demand Market equilibrium Demand decreases Equilibrium price decrease equilibrium quantity decrease S D1 Q P 100 200 D2 A B P60 P50 Figure 3.11 Shift in Demand ( De creases)

22. Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat. Duis aute irure dolor in reprehenderit in voluptate velit esse cillum dolore eu fugiat nulla pariatur. Shift in supply Market equilibrium Increase in supply Equilibrium price decrease equilibrium quantity increase 400 300 P60 S1 S2 P P50 D Q Figure 3.12 Shift in Supply (Increases)

23. Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat. Duis aute irure dolor in reprehenderit in voluptate velit esse cillum dolore eu fugiat nulla pariatur. Shift in supply Market equilibrium Decrease in supply Equilibrium price increase equilibrium quantity decrease 400 300 P60 S2 S1 P P50 D Q Figure 3.13 Shift in Supply (Decreases)

24. Summary of changes in equilibrium Change Change in Price Change in Quantity Demand Increases Price Increase Quantity Increase Demand Decreases Price Decrease Quantity Decrease Supply Increases Price Decrease Quantity Increase Supply Decreases Price Increase Quantity Decrease Demand Increases & Supply Increases Price Indeterminate Quantity Increase Demand Increases & Supply Decreases Price Increase Quantity Indeterminate Demand Decreases & Supply Increases Price Decrease Quantity Indeterminate Demand Decreases & Supply Decreases Price Indeterminate Quantity Decrease Table 3.3 Summary of Changes in Equilibrium

25. Market Interference PRICE CONTROL PRICE CEILING PRICE FLOOR Market equilibrium

26. Thank you!