Micro Economics Demand and Supply Analysis

This presentation delves into the critical concepts of demand and supply within Micro Economics. It covers the determinants of demand, the law of demand, and its exceptions, including the Giffen paradox and luxuries. The presentation also explores elasticity of demand, encompassing price, income, and cross elasticity. On the supply side, it explains the law of supply, its assumptions, exceptions, and the concept of price elasticity of supply. Finally, the presentation discusses market equilibrium, where the quantity of goods supplied equals the quantity demanded.

1. DEMAND AND SUPPLY

2. Demand: Desire + Willingness + Ability Determinants of Demand: Cost, Income, preferences, availability.

3. Law of Demand “Other things remaining constant when there is a rise in the price of commodity the demand will decrease and when there is decline in price of the commodity the demand will increase. X axis = quantity, y axis = price. P1P2 – A to B (Demand Reduce) Vice versa s(Price Reduce Demand Increase) Therefore they are inversely proportional.

4. Assumptions. No change in Prices. Income of consumers do not change Taste and preference remain same No expectation of future prices. Exceptions 1. Giffen Paradox. 2. Luxuries 3. Inferior 4. Addictions and Money

5. Elasticity of Demand i.e. degree of responsiveness of demand when price changes. 3 Types: Price Elasticity Income Elasticity Cross Elasticity Advertising.

6. Price Elasticity of Demand Perfectly Elastic Demand: (Ed ∞) Perfectly Inelastic Demand: (Ed =0 ) Relatively Elastic Demand: (Ed >1) Relatively Inelastic Demand: (Ed <1) Unitary Demand Ed = 1

7. Changes in Demand when factors other than price are affected Decrease in Demand: (Left Shift) Increase in Demand: (Right Shift.)

8. SUPPLY It refers to the quantity of a commodity which producers or sellers are willing to produce and offer for sale at a particular price, in a given market at a particular period of time. Desired Quantity + Price + Time… (important aspects of Supply Law of Supply “other things remaining constant whenever price is increased supply will increase and whenever price is decreased supply will decrease.”

9. Assumptions No Change in prices of factors of production. No change in the production techniques No change in firm No change in prices of substitutes Producers don’t assume. Exceptions Future expectations. Liquidation of business Monopoly Factors of production. Perishable goods

10. Price Elasticity of Supply Perfectly Elastic Supply: (Ed ∞) Perfectly Inelastic Supply: (Ed =0 ) Relatively Elastic Supply: (Ed >1) Relatively Inelastic Supply: (Ed <1) Unitary Elastic Supply Ed = 1

11. MARKET EQULLIBRIUM Market equilibrium is a state where the quantity of a good or service that suppliers are willing to sell (supply) equals the quantity that buyers are willing to buy (demand) at a given price.

12. THANK YOU