DYNAMICS OF MARKETS

DEMAND AND SUPPLY (grade 10)

L. MGAGA 201244296

Introduction The following slides are the compilation of different slides from five different authors about the topic Demand and Supply.

Authors : Ankit Bist

Ujjwal 'Shanu‘

KASBIT

Jiten Sharma

NepDevWiki

Topics:

• Demand

Define demand

Law of demand

Demand Schedule (elasticity of demand)

Factors Affecting Demand curve (graphs)

Markets equilibrium

• Supply

Define supply

Law of supply

Supply Schedule

Factors Affecting Supply curve (graphs)

Elasticity

DemandDefinition: The amount of a particular economic good or service that a consumer or group of consumers will want to purchase at a given price

•Law of demand :States that a quantity of a good demanded during a given period relates inversely to its price, other things constant.

•Price increases Quantity Demanded decreases

•Price decreases Quantity demanded increases

•Creates a downward sloping demand curve

Demand Schedule

Point Price [Rs per unit]Quantity demanded of X

[kg. per month]

abcdef

0.501.00

2.002.50

1.50

7.0

3.52.5

3.00

5.0

1.01.5

1 2 3

0.50

1.00

2.00

Quantity of X

Pric

e o

f X

3.00

2.50

654 7

Demand Curve

a

b

c

e

d

f

1.50

Demand schedule

Elasticity of demand

Factors effecting demand curve

(movements and shifts along the curve)

1. Change in taste

2. Prices of other goods

• Substitute

• Complement

3. Income

4. Government rules and regulation

1.Changes in taste (shift in demand)

• Consumers prefer platform shoes.

• At $50, demand increases from 100 to 200.

D

$50

100

D2

200

2.2.1Change in Prices of other goods (substitute)

Suppose the two cold drinks coke and Pepsi are substitutes

E.g.: Price of coke increases, demand of Pepsi increases

D2D

Quantity (Pepsi)

Pric

e

Increase in demand

2.2.Change in Prices of other goods

(Complements)

DD1

Quantity (sugar)P

rice

Suppose tea and sugar are complements(they work together)

E.g.: Price of tea increases, demand of sugar decreases

Decrease in demand

3.Change in Income

D2

D

Quantity XP

rice

Increase in demandThe increase in income increases the quantity of goods demanded (demand increases shifts rightward)

4.Change in Government Regulation (Sales tax)

D1

Quantity X

Pric

e

Decrease in demand

SUPPLY:• Definition: The total amount of a

good or service available for purchase; along with demand, one of the two key determinants of price.

Law of supply: If demand is held constant, an increase in supply leads to a decreased price, while a decrease in supply leads to an increased price.

Supply ScheduleThe increase in price increases the quantity

supplied, e.g. price increase from 2 to 4 an quantity increases from 3 to .

Factors that effect the Supply curve

• Technology

• Changes in prices of Alternative Goods

• Changes in Relevant Resources

• Changes in the Number of Producers

• Changes in Producers Expectations

1.Changes in technology• Technology is the economy’s stock of

knowledge about how to combine resources efficiently

Improvements in technologyCauses an increase in supply

More of the product is available at all prices

Changes in prices of Alternative Goods• Alternative goods

• Other goods that use some or all of the same resources as the good in question

• Beef and leather.

• If the price of beef decreases, producers will supply less beef thus decreasing the supply of leather.

400300

$6

S1

Above is the market for the supply of leather

Q Leather

Price

Changes in Relevant Resources

• Resources that are employed in the production of the good in question

• Increase in price of resources

• Results in decrease in supply

• Less of the good is available at all prices

$9

500 600

S1

S2

Changes in the Number of Producers

• As the number of producers change so does the supply of the product

• A decrease in the number of producers will lead to a decrease in supply

Changes in Producers Expectations

• Expectation of future prices of resources or their own product can cause producers to change what they offer at each individual price

Demand, Supply & Market equilibrium

Market Equilibrium• Market

• Includes all the arrangements used to buy and sell

• Reduce transaction costs

• The place where buyers and sellers meet to determine price and quantity

Equilibrium• At specific price

where:

Quantity Quantity demandeddemanded

EqualsEquals

Quantity SuppliedQuantity Supplied

S

D

Q

P

$5

150

Equilibrium

Surplus

When price > equilibrium price, then quantity supplied > quantity demanded.

•There is excess supply or a surplus. •Suppliers will lower the price to increase sales, thereby moving toward equilibrium.

Shortage

When price < equilibrium price, then quantity demanded > the quantity supplied.

•There is excess demand or a shortage. •Suppliers will raise the price due to too many buyers chasing too few goods, thereby moving toward equilibrium.

EQUILIBRIUM SHORTAGE VS SURPLUS

SP

Q

5

4

3

2

1

2 4 6 8 10 12 14 16

Price of quantity

Quantity

Shortage

EQUILIBRIUM- shortage

S

P

Q

5

4

3

2

1

2 4 6 8 10 12 14 16

D

Quantity

Surplus

EQUILIBRIUM- surplusExtent to which generation of

goods, services, and resources

(such as capital) exceeds their

consumption is called surplus.

Summary of demand, supply &equilibrium

Change in Supply

Change in Demand

Effect on Equilibrium

Price

Effect on Equilibrium

Quantity

Increase Decrease Decrease Indeterminate

Decrease Increase Increase Indeterminate

Increase Increase Indeterminate Increase

Decrease Decrease Indeterminate Decrease

References • Ankit Bist (2011) DEMAND AND SUPPLY at

http://www.slideshare.net/AnkitBist/demand-and-supply-10629356?qid=94fd494d-bed6-4867-a65f-f0d7a1e25582&v=default&b=&from_search=4

• Ujjwal Shanu (2013) DEMAND AND SUPPLY at http://www.slideshare.net/ujjmishra1/demand-and-supply-28840569?qid=94fd494d-bed6-4867-a65f-f0d7a1e25582&v=default&b=&from_search=8

• KASBIT (2011) Basic elements of supply and demand, at http://www.slideshare.net/imranbashir69/basic-elements-of-supply-and-demand

• Jiten Sharma (2012) demand and supply at http://www.slideshare.net/JitenSharma1/demand-supply-market-equilibrium-15222434

• NepDevWiki (2012) 05 price elasticity of demand and supply at http://www.slideshare.net/NepDevWiki/05-price-elasticity-of-demand-and-supply