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Demand & Supply.

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Presentation on theme: "Demand & Supply."— Presentation transcript:

1 Demand & Supply

2 MARKETS DEFINED POTENTIAL BUYERS POTENTIAL SELLERS MARKETS

3 DEMAND Want it Can afford it Plan to buy

4 DEMAND DEFINED P QD A schedule or a curve that shows the various amounts of a product that consumers are willing and able to purchase at each of a series of possible prices. $5 4 3 2 1 10 20 35 55 80

5 LAW OF DEMAND An inverse relationship exists between price and quantity demanded As Price Falls… …Quantity Demanded Rises As Price Rises… …Quantity Demanded Falls

6 LAW OF DEMAND Diminishing Marginal Utility

7 LAW OF DEMAND Income Effect Substitution Effect
Diminishing Marginal Utility Income Effect Substitution Effect

8 LAW OF DEMAND Income Effect Substitution Effect
Diminishing Marginal Utility Income Effect Substitution Effect

9 LAW OF DEMAND Demand Curve Individual and Market Demand
Diminishing Marginal Utility Income Effect Substitution Effect Demand Curve Individual and Market Demand

10 GRAPHING DEMAND Plot the Points P QD $5 4 3 2 1 10 20 35 55 80 P o Q
Price of Corn P $5 4 3 2 1 CORN Plot the Points P QD $5 4 3 2 1 10 20 35 55 80 o Q Quantity of Corn

11 GRAPHING DEMAND Plot the Points P QD $5 4 3 2 1 10 20 35 55 80 P o Q
Price of Corn P $5 4 3 2 1 CORN Plot the Points P QD $5 4 3 2 1 10 20 35 55 80 o 55 Q Quantity of Corn

12 GRAPHING DEMAND Plot the Points P QD $5 4 3 2 1 10 20 35 55 80 P o Q
Price of Corn P $5 4 3 2 1 CORN Plot the Points P QD $5 4 3 2 1 10 20 35 55 80 o Q 35 Quantity of Corn

13 GRAPHING DEMAND Plot the Points P QD $5 4 3 2 1 10 20 35 55 80 P o Q
Price of Corn P $5 4 3 2 1 CORN Plot the Points P QD $5 4 3 2 1 10 20 35 55 80 o Q Quantity of Corn

14 GRAPHING DEMAND Plot the Points P QD $5 4 3 2 1 10 20 35 55 80 P o Q
Price of Corn P $5 4 3 2 1 CORN Plot the Points P QD $5 4 3 2 1 10 20 35 55 80 o Q Quantity of Corn

15 GRAPHING DEMAND Connect the Points P QD $5 4 3 2 1 10 20 35 55 80 P D
Price of Corn P $5 4 3 2 1 CORN Connect the Points P QD $5 4 3 2 1 10 20 35 55 80 D o Q Quantity of Corn

16 What if Demand Increases?
GRAPHING DEMAND Price of Corn What if Demand Increases? P $5 4 3 2 1 CORN P QD $5 4 3 2 1 10 20 35 55 80 D o Q Quantity of Corn

17 GRAPHING DEMAND Increase in Quantity Demanded P QD $5 4 3 2 1 10 20 35
Price of Corn P Increase in Quantity Demanded $5 4 3 2 1 CORN P QD $5 4 3 2 1 10 20 35 55 80 30 40 60 80 + Increase in Demand D’ D o Q Quantity of Corn

18 What if Demand Decreases?
GRAPHING DEMAND Price of Corn What if Demand Decreases? P $5 4 3 2 1 CORN P QD $5 4 3 2 1 10 20 35 55 80 D o Q Quantity of Corn

19 GRAPHING DEMAND Decrease in Quantity Demanded P QD $5 4 3 2 1 10 20 35
Price of Corn P Decrease in Quantity Demanded $5 4 3 2 1 CORN P QD $5 4 3 2 1 10 20 35 55 80 -- 10 20 40 60 Decrease in Demand D D’ o Q Quantity of Corn

20 DETERMINANTS OF DEMAND
Tastes Number of Buyers Income Normal (Superior) & Inferior Goods Prices of Related Goods Substitutes & Complements Unrelated Goods Expectations

21 Supply If a firm supply a good or service, the firm:
Has the resources & technology to produce it. Can profit from producing it . Plan to produce it & sale it.

22 SUPPLY DEFINED CORN P QS Supply is a schedule or a curve showing the amounts of a product that producers are willing and able to make available for sale at each of a series of possible prices. $1 2 3 4 5 5 20 35 50 60

23 LAW OF SUPPLY A direct relationship exists between price and quantity supplied As Price Rises… …Quantity Supplied Rises As Price Falls… …Quantity Supplied Falls

24 Why higher price brings higher supply ?
Its because of higher marginal cost. When increase in marginal covered up by increase in higher price producer will be motivate to produce more.

25 Difference b/w supply & quantity supply
Supply refers to a entire relationship b/w the quantity supply of a good & its price. The term quantity supplied refers to a point on a supply curve-the quantity supplied at a specified price.

26 GRAPHING SUPPLY Plot the Points P QS $5 4 3 2 1 60 50 35 20 5 P o Q 5
Price of Corn P $5 4 3 2 1 CORN P QS $5 4 3 2 1 60 50 35 20 5 o 5 Q Quantity of Corn

27 GRAPHING SUPPLY Plot the Points P QS $5 4 3 2 1 60 50 35 20 5 P o Q
Price of Corn P $5 4 3 2 1 CORN P QS $5 4 3 2 1 60 50 35 20 5 o Q Quantity of Corn

28 GRAPHING SUPPLY Plot the Points P QS $5 4 3 2 1 60 50 35 20 5 P o Q
Price of Corn P $5 4 3 2 1 CORN P QS $5 4 3 2 1 60 50 35 20 5 o 35 Q Quantity of Corn

29 GRAPHING SUPPLY Plot the Points P QS $5 4 3 2 1 60 50 35 20 5 P o Q
Price of Corn P $5 4 3 2 1 CORN P QS $5 4 3 2 1 60 50 35 20 5 o Q Quantity of Corn

30 GRAPHING SUPPLY Plot the Points P QS $5 4 3 2 1 60 50 35 20 5 P o Q
Price of Corn P $5 4 3 2 1 CORN P QS $5 4 3 2 1 60 50 35 20 5 o Q Quantity of Corn

31 GRAPHING SUPPLY Connect the Points P QS $5 4 3 2 1 60 50 35 20 5 P S o
Price of Corn P S $5 4 3 2 1 CORN P QS $5 4 3 2 1 60 50 35 20 5 Connect the Points o Q Quantity of Corn

32 What if Supply Increases?
GRAPHING SUPPLY Price of Corn What if Supply Increases? P S $5 4 3 2 1 CORN P QS $5 4 3 2 1 60 50 35 20 5 o Q Quantity of Corn

33 GRAPHING SUPPLY Increase in Supply P QS $5 4 3 2 1 60 50 35 20 5 80 70
Price of Corn P Increase in Supply S’ S $5 4 3 2 1 CORN P QS $5 4 3 2 1 60 50 35 20 5 80 70 60 45 30 Increase in Quantity Supplied o Q Quantity of Corn

34 What if Supply Decreases?
GRAPHING SUPPLY Price of Corn What if Supply Decreases? P S $5 4 3 2 1 CORN P QS $5 4 3 2 1 60 50 35 20 5 o Q Quantity of Corn

35 GRAPHING SUPPLY P QS $5 4 3 2 1 60 50 35 20 5 45 30 20 -- Decrease
Price of Corn S’ P S $5 4 3 2 1 CORN P QS $5 4 3 2 1 60 50 35 20 5 45 30 20 -- Decrease in Quantity Supplied o Q Quantity of Corn

36 DETERMINANTS OF SUPPLY
Resource Prices Technology Taxes & Subsidies Prices of Other Goods Price Expectations Number of Sellers

37 DETERMINANTS OF SUPPLY
Resource Prices Technology Taxes & Subsidies Prices of Other Goods Price Expectations Number of Sellers Combining with Demand

38 x x MARKET DEMAND & SUPPLY EQUILIBRIUM P QD P QS $5 4 3 2 1 10 20 35
BUSHELS OF CORN P QS BUSHELS OF CORN MARKET DEMAND MARKET SUPPLY 200 B U Y E R S 200 S E L R $5 4 3 2 1 10 20 35 55 80 2,000 4,000 7,000 11,000 16,000 $5 4 3 2 1 12,000 10,000 7,000 4,000 1,000 60 50 35 20 5 x x EQUILIBRIUM Graphically…

39 MARKET DEMAND & SUPPLY P QD P QS $5 4 3 2 1 2,000 4,000 7,000 11,000
Price of Corn P CORN MARKET CORN MARKET S $5 4 3 2 1 P QD P QS $5 4 3 2 1 2,000 4,000 7,000 11,000 16,000 Market Clearing Equilibrium $5 4 3 2 1 12,000 10,000 7,000 4,000 1,000 D 7 o Q Quantity of Corn

40 MARKET DEMAND & SUPPLY Surplus P QD P QS $5 4 3 2 1 2,000 4,000 7,000
Price of Corn P CORN MARKET CORN MARKET Surplus S $5 4 3 2 1 P QD P QS At a $4 price more is being supplied than demanded $5 4 3 2 1 2,000 4,000 7,000 11,000 16,000 $5 4 3 2 1 12,000 10,000 7,000 4,000 1,000 D 7 o Q Quantity of Corn

41 MARKET DEMAND & SUPPLY Shortage P QD P QS $5 4 3 2 1 2,000 4,000 7,000
Price of Corn P CORN MARKET CORN MARKET S $5 4 3 2 1 P QD P QS At a $2 price more is being demanded than supplied $5 4 3 2 1 2,000 4,000 7,000 11,000 16,000 $5 4 3 2 1 12,000 10,000 7,000 4,000 1,000 Shortage D 7 11 o Q Quantity of Corn

42 MARKET DEMAND & SUPPLY Surplus Shortage P QD P QS $5 4 3 2 1 2,000
Price of Corn P CORN MARKET CORN MARKET Surplus S $5 4 3 2 1 P QD P QS $5 4 3 2 1 2,000 4,000 7,000 11,000 16,000 $5 4 3 2 1 12,000 10,000 7,000 4,000 1,000 Shortage D 7 11 o Q Quantity of Corn

43 MARKET EQUILIBRIUM Equilibrium Price & Quantity
Rationing Function of Prices Changes in Demand Changes in Quantity Demanded Changes in Supply Changes in Quantity Supplied

44 Complex Cases Multiple Shifts… Supply Increases; Demand Decreases
Prices Decrease Quantity Indeterminate Supply Decreases; Demand Increases Price Increases

45 Complex Cases Multiple Shifts… Supply Increases; Demand Increases
Prices Indeterminate Quantity Increases Supply Decreases; Demand Decreases Price Indeterminate Quantity Decreases

46 Government Set Prices Price Ceilings Price Floors Shortages
Rationing Problem Black Markets Rent Controls Price Floors Surpluses

47 Price Ceiling A maximum price that sellers may charge for a good, usually set by government. Excess Demand (Shortage) Created by a Price Ceiling

48 Price ceiling Price Rationing :The process by which the market system allocates goods and services to consumers when quantity demanded exceeds quantity supplied. Ration coupons Tickets or coupons that entitle individuals to purchase a certain amount of a given product per month. Black market A market in which illegal trading takes place at market-determined prices.

49 PRICE FLOORS Price floor A minimum price below which exchange is not permitted. Minimum wage A price floor set under the price of labor. Agricultural Products


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