Unit 1 PPT on Demand_and_Supply_Explanation.pptx

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1. Demand and Supply A Detailed Explanation in Microeconomics

2. Definition of Demand Demand refers to the quantity of a good or service that consumers are willing and able to buy at various prices during a given period of time. Law of Demand: As price decreases, quantity demanded increases (inverse relationship).

3. Demand Curve and Determinants Demand Curve: Downward sloping from left to right. Determinants of Demand: - Price of the good - Consumer income - Tastes and preferences - Prices of related goods - Future expectations - Population

4. Types of Demand - Individual vs. Market Demand - Joint Demand (e.g., pen and ink) - Composite Demand (e.g., milk for tea, coffee) - Derived Demand (e.g., demand for steel due to car production)

5. Definition of Supply Supply refers to the quantity of a good or service that producers are willing and able to sell at various prices during a given period of time. Law of Supply: As price increases, quantity supplied increases (direct relationship).

6. Supply Curve and Determinants Supply Curve: Upward sloping from left to right. Determinants of Supply: - Price of the good - Input costs - Technology - Number of sellers - Future expectations - Government policy - Natural conditions

7. Market Equilibrium Market Equilibrium occurs when demand equals supply. - Equilibrium Price: No shortage or surplus - Surplus: Supply > Demand (price falls) - Shortage: Demand > Supply (price rises)

8. Examples of Demand and Supply Example 1 (Demand Shift): Hot weather increases demand for cold drinks → demand curve shifts right. Example 2 (Supply Shift): Increase in sugar price reduces sweet supply → supply curve shifts left.