Demand and Supply Analysis. Demand and supply analysis The price mechanism: effect of a rise in demand the goods market The price mechanism: effect of.

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Presentation transcript:

Demand and Supply Analysis

Demand and supply analysis The price mechanism: effect of a rise in demand the goods market The price mechanism: effect of a rise in demand the goods market

Goods Market DgDg  shortage (D g > S g ) PgPg  SgSg  DgDg  until D g = S g The price mechanism: the effect of a rise in demand The price mechanism: the effect of a rise in demand

Demand and supply analysis The price mechanism: effect of a rise in demand factor markets The price mechanism: effect of a rise in demand factor markets

Goods Market DgDg  shortage (D g > S g ) PgPg  SgSg  DgDg  until D g = S g Factor Market SgSg  SfSf  DfDf  until D f = S f  DfDf shortage (D f > S f ) PfPf  The price mechanism: the effect of a rise in demand The price mechanism: the effect of a rise in demand

Demand and supply analysis The demand curve

The demand curve: The demand for potatoes (monthly)

Quantity (tonnes: 000s) Price (pence per kg) Price (pence per kg) 20 Market demand (tonnes 000s) 700 A Point A Market demand for potatoes (monthly) Demand

Quantity (tonnes: 000s) Price (pence per kg) Price (pence per kg) Market demand (tonnes 000s) ABAB Point A B Demand Market demand for potatoes (monthly)

Quantity (tonnes: 000s) Price (pence per kg) Price (pence per kg) Market demand (tonnes 000s) ABCABC Point A B C Demand Market demand for potatoes (monthly)

Quantity (tonnes: 000s) Price (pence per kg) Price (pence per kg) Market demand (tonnes 000s) ABCDABCD Point A B C D Demand Market demand for potatoes (monthly)

Quantity (tonnes: 000s) Price (pence per kg) Price (pence per kg) Market demand (tonnes 000s) ABCDEABCDE Point A B C D E Demand Market demand for potatoes (monthly)

Demand and supply analysis Shifts in the demand curve Shifts in the demand curve

D1D1 Price P OQ0Q0 Q1Q1 Quantity An increase in demand D0D0

D0D0 Price P OQ0Q0 Q1Q1 Quantity A decrease in demand D1D1

Demand and supply analysis The supply curve

The supply curve: The supply of potatoes (monthly)

Price (pence per kg) Quantity (tonnes: 000s) Supply a P 20 Q 100 a Market supply of potatoes (monthly)

Price (pence per kg) Quantity (tonnes: 000s) Supply a b P Q abab Market supply of potatoes (monthly)

Price (pence per kg) Quantity (tonnes: 000s) Supply a b c P Q abcabc Market supply of potatoes (monthly)

Price (pence per kg) Quantity (tonnes: 000s) Supply a b c d P Q abcdabcd Market supply of potatoes (monthly)

Price (pence per kg) Quantity (tonnes: 000s) Supply a b c d e P Q abcdeabcde Market supply of potatoes (monthly)

Demand and supply analysis Shifts in the supply curve Shifts in the supply curve

P QO S0S0 Shifts in the supply curve

P QO S0S0 Increase S1S1 Shifts in the supply curve

P QO S2S2 S0S0 S1S1 IncreaseDecrease Shifts in the supply curve

Demand and supply analysis Market equilibrium

Equilibrium price and output : The Market Demand and Supply of Potatoes (Monthly)

The determination of market equilibrium (potatoes: monthly) Quantity (tonnes: 000s) E D C B A a b c d e Supply Demand Price (pence per kg)

Quantity (tonnes: 000s) E C B A a b c e Supply Demand Price (pence per kg) D d SURPLUS ( ) The determination of market equilibrium (potatoes: monthly)

Quantity (tonnes: 000s) E D C B A a b c d e Supply Demand Price (pence per kg) SHORTAGE ( ) The determination of market equilibrium (potatoes: monthly)

D d QeQe Quantity (tonnes: 000s) E B A a b e Supply Demand Price (pence per kg) The determination of market equilibrium (potatoes: monthly)

Demand and supply analysis Effect of shift in the demand curve

P Q O Pe1Pe1 Qe1Qe1 S D1D1 g Effect of a shift in the demand curve An increase in demand

P Q O Pe1Pe1 Qe1Qe1 S D1D1 g Effect of a shift in the demand curve

P Q O Pe1Pe1 Qe1Qe1 S D1D1 D2D2 g

P Q O Pe1Pe1 Qe1Qe1 S g h D1D1 D2D2 Pe2Pe2 Qe2Qe2 i

P Q O Pe1Pe1 Qe1Qe1 S D1D1 D2D2 g A decrease in demand Effect of a shift in the demand curve

P Q O Pe1Pe1 Qe1Qe1 S D1D1 D2D2 g Pe2Pe2 Qe2Qe2 n m

Demand and supply analysis Effect of shift in the supply curve

P Q O Pe1Pe1 Qe1Qe1 D S1S1 g Effect of a shift in the supply curve A decrease in supply

P Q O Pe1Pe1 Qe1Qe1 D S1S1 g Effect of a shift in the supply curve

P Q O Pe1Pe1 Qe1Qe1 D S1S1 S2S2 g

P Q O Pe1Pe1 Pe3Pe3 Qe3Qe3 Qe1Qe1 D S1S1 S2S2 jg k

P Q O Pe1Pe1 Qe1Qe1 D S1S1 g An increase in supply S2S2 Effect of a shift in the supply curve

P Q O Pe1Pe1 Qe1Qe1 D S1S1 g S2S2 p Pe2Pe2 Qe2Qe2 q