UNIT 2_DEMAND ANALYSIS FOR MICROECONOMICS.pptx

DEMAND ANALYSIS

1. PRINCIPLES OF MICROECONOMICS Demand Analysis TOPIC 2

2. Definition Demand (D) - the desires or wishes consumers have for goods or services, supported by the ability and willingness to purchase the goods or services at a particular time and price ( ceteris peribus ). The quantity demanded ( Q d ) of goods or services is the amount that consumers plan to buy during a particular time period, and at a particular price. * ceteris peribus – everything else is remain constant DEMAND

3. Demand curve and demand schedule Demand schedule shows the quantity of goods and services that will be demanded at different prices at a particular time. Demand curve shows the relationship between quantity demanded and price. DEMAND

4. Demand curve and demand schedule Combination Price (RM) Quantity (units) O 50 P 40 2 Q 30 4 R 20 6 S 10 8 T 10 DEMAND The demand schedule below shows the quantity demanded for a particular good at its corresponding price.

5. Demand curve and demand schedule The demand curve reflects the demand schedule above. The horizontal axis indicates the quantity demanded and vertical axis shows the price. When point P,Q, R and S are connected, the demand curve is formed. DEMAND

6. Law of Demand The law of demand states: Other things remaining the same (ceteris peribus), the higher the price of goods, the smaller is the quantity demanded ; and the lower the price of goods, the larger is the quantity demanded. Therefore, price and quantity demanded have a negative or inverse relationship , and the demand curve is sloping downward from left to right DEMAND

7. Law of Demand Law of demand is derived from substitution and income effect. Substitution effect If the price of a good rises relative to the price of other goods, consumers tend to substitute the goods that is relatively cheaper for the good that is now relatively expensive. Income effect As the price of the good increases and money held is constant, the real income decreases and consumers cannot afford to purchase as much as they previously could . DEMAND

8. Types of demand Individual demand is the demand of an individual consumer for a specific good at a certain price in a given period of time. DEMAND

9. Types of demand Market demand is the quantity of goods demanded in a market at a certain price in a given period of time. It is the sum of individual demand of all consumers in a particular market. DEMAND

10. Types of demand Price (RM) Quantity demanded for individual A (units) Quantity demanded for individual B (units) Market demand (units) A + B 1 3 4 7 2 2 3 5 3 1 2 3 DEMAND

11. Demand function in mathematical form is as follows: Q d = a- bP where, Q d = quantity of demanded goods (units) a = quantity demanded when price (P) is zero - = indicates the inverse relationship between price and quantity b = gradient of demand curve P = price of the goods (RM) Demand Function DEMAND

12. Demand Function Example 1 The demand equation for pencil case is Q d = 12-2P. Calculate the quantity demanded for pencil case at different price level. DEMAND Price (RM) Quantity demanded ( units) 12 1 10 2 8 3 6 4 4

13. Demand Function Therefore, Try for all price.   DEMAND

14. Definition Supply (S) - the willingness and the ability of producers to sell goods and services at a certain price and time, ceteris peribus The quantity supplied (Q S ) of a good or service is the amount that producers plan to sell during a given time period at a particular price. * ceteris peribus – everything else is remain constant Farmer: chilli,chilli , chilli , chilli , SUPPLY

15. Supply curve and supply schedule Supply schedule shows the quantity of goods and services that will be supplied at different prices at a particular time. Supply curve shows the relationship between quantity demanded and price. SUPPLY

16. Supply curve and supply schedule SUPPLY The supply curve reflects the supply schedule. The horizontal axis indicates the quantity supplied and vertical axis shows the price. When point P,Q, R, T, U and V are connected, the supply curve is formed.

17. Law of Supply The law of supply states: Other things remaining the same (ceteris peribus), the higher the price of goods, the larger is the quantity supplied ; the lower the price of goods, the smaller is the quantity supplied. Therefore, price and quantity supplied have a positive relationship , and the supply curve is sloping upward from left to right SUPPLY

18. Types of supply Firm supply is the supply of a single producer for a specific price in a given period of time. SUPPLY

19. Types of supply Industry (market) supply is the quantity of goods and services that all firms in an industry able and willing to produce at a certain price in a given period of time. SUPPLY     Q A Price of coffee (RM)   Price (RM)     S A S B Industry supply Q B Q S Quantity (units)

20. Types of supply SUPPLY Price (RM) Quantity supplied by Firm A (units) Quantity supplied by Firm B (units) Industry supply(units) A + B 15 1000 1200 2200 20 1500 1700 3200 25 2000 2200 4200

21. Supply Function Supply function in mathematical form is as follows: Q s = c + dP where, Q s = quantity of goods supplied (units) c = quantity supplied when price (P) is zero + = indicates the positive relationship between price and quantity supplied d = gradient of supply curve P = price of the goods (RM) SUPPLY

22. Supply Function Example 2 The supply function is given as Q s = 15+3(4). Calculate the quantity supplied at different price level. SUPPLY Price (RM) Quantity supplied ( units) 1 18 2 21 3 24 4 27