Kinh tế học - Demand and supply analysis

Demand and Supply AnalysisLearning ObjectivesAt the end of this lecture, students should be able toDefine demand and supplyKnow determinants of demand and supplyUnderstand Demand/supply Schedule, individual demand/supply curve, market demand/supply curveDetermine the market equilibrium price and its function What is Demand? It refers to the various quantities of goods and services buyers are willing and able to buy at a particular price over a given period of time.Demand in economics is not just need or desire or want , It is all these things backed by a willingness and ability to pay and is known as Effective DemandLaw of demandIt states that .demand for a good or service falls if its price increases, and rises if its price decreases, all things being held equal or vice versaWhat is the relationship between Demand and price?• Demand and price are inversely related – less quantities are purchased at a higher price, more at lower priceIndividual and Market DemandIndividual Demand; these are the various quantities of goods and services individuals are willing and able to buy at various prices over a period of time.Market Demand; this is the sum or total of various quantities of goods and services all consumers in the market willing and able to buy at various prices over a period of time.Individual and Market demand schedulePrice $Individual consumer AIndividual consumer BMarket Demand10100300400820045065063005508504400650105025007501250The demand curveThe demand curve:The demand for potatoes (monthly)Quantity (tonnes: 000s)Price (pesewa per kg)Price(pesewa per kg)20Market demand(tonnes 000s)700APointAMarket demand for potatoes (monthly)DemandQuantity (tonnes: 000s)Price (pesewa per kg)Price(pesewa per kg)2040Market demand(tonnes 000s)700500ABPointABDemandMarket demand for potatoes (monthly)Quantity (tonnes: 000s)Price (pesewa per kg)Price(pesewa per kg)2040 60 Market demand(tonnes 000s)700500350ABCPointABCDemandMarket demand for potatoes (monthly)Quantity (tonnes: 000s)Price (pesewa per kg)Price(pesewa per kg)2040 60 80 Market demand(tonnes 000s)700500350200ABCDPointABCDDemandMarket demand for potatoes (monthly)Quantity (tonnes: 000s)Price (pesewa per kg)Price(pesewa per kg)2040 60 80 100 Market demand(tonnes 000s)700500350200100ABCDEPointABCDEDemandMarket demand for potatoes (monthly)What is the nature of the demand curve?Negatively sloping from left to rightFactors that affect demand• Price of commoditiesIncome• Taste• price of commodities are often interrelated: complements/substitutes• Price of Complements- milk/tea• Substitutes: price of commodity with many substitutes is very sensitive to change- butter and margarineDeterminants of ddQx=f(Px,I,Pr,T,N,E)WhereQx= qty of productPx=Price of commoditiesI = income of consumerPr= Price of related productT= Taste and preferencesN= Number of household/ consumersE= Expectation about future pricesChange in Quantity Demanded and Change in DemandChange in Quantity DemandedA change in quantity demanded is caused by the change in price of the product itself holding other factors constantIt is also known as movement along the same demand curvePriceP2OQ2Q1QuantityA change in quantity demandedD1Q0CABP0P1Change in Demand/Shifts in thedemand curveA change in quantity caused by a change in other factors affecting dd apart from PRICE. Such as income, price of related product, taste and preference, etc.D1PricePOQ0Q1QuantityShift in demandD0D2Q2DecreaseIncreaseTypes of DDJoint or complementaryCompetitiveCompositeDerived Types of goodsNormal or superior goods (income increases, demand increases)Inferior goods (income increases, demand decreases)Giffen Goods (prices increases dd increases and vice versa) Necessities (dd unchanged as income changes, goods man cannot do without them)Luxury goods ( goods man can do without them)The SupplySupply is the various quantities of goods and services, producers are willing and able to offer for sale at a particular price over a given period of time. The Law of SupplyIt states that, other things being equal, the quantity of a commodity offered in a given market at a given time tends to vary directly with its price. The higher the price, the greater will be the quantity which sellers will be willing to supply and vice versa.Positive correlation between price and quantity suppliedIndividual and Industry supplyIndividual Supply; these are the various quantities of goods and services that an individual producer is willing and able to supply at a particular price over a period of time.Industry Supply; this is the total goods and services which producers within an industry are willing and able to supply at a particular price within a given period of time.Individual and Industry SupplyPrice $Producer AProducer BIndustry Supply10,0005,0004,0009,0002,0007,0006,00013,0003,0008,0007,00015,0004,0009,0008,00017,0005,0009,50010,00019,5006,00010,00012,00022,000The supply curveThe supply curve:The supply of potatoes (monthly)Price (pesewa per kg)Quantity (tonnes: 000s)Supplya P 20 Q100aMarket supply of potatoes (monthly)Price (pesewa per kg)Quantity (tonnes: 000s)Supplyab P 20 40 Q100200abMarket supply of potatoes (monthly)Price (pesewa per kg)Quantity (tonnes: 000s)Supplyabc P 20 40 60 Q100200350abcMarket supply of potatoes (monthly)Price (pesewa per kg)Quantity (tonnes: 000s)Supplyabcd P 20 40 60 80 Q100200350530abcdMarket supply of potatoes (monthly)Price (pesewa per kg)Quantity (tonnes: 000s)Supplyabcde P 20 40 60 80100 Q100200350530700abcdeMarket supply of potatoes (monthly)Determinant of SupplyPrice of the commodityPrice of other commoditiesThe cost of productionThe level of TechnologyTaxes and subsidiesNatural phenomenonThe cash position of producersExpectation of changes in priceQs=g(P,Pr,Pi,G,T,E,..)Qs= Qty supplyP= PricePr= Price of the related goodPi= Price of inputG= Government PolicyT= TechnologyN= number of consumersE= Expectation of future pricesChange in Quantity Supplied and Change in SupplyChange in Quantity SuppliedIt is a change in quantity offered for sale caused by a change in the price of the product itself.PQOShifts in the supply curveP2P0P1Q2Q0Q1 ACBChange in Supply /Shifts in thesupply curveA change in quantity offered for sale caused by a change in all factors affecting supply apart from pricePQOS0Shifts in the supply curvePQOS0IncreaseS1Shifts in the supply curveP0QOS2S0S1IncreaseDecreaseShifts in the supply curveQ2Q0Q1PDemand and supply analysisMarket equilibriumEquilibrium price and output:The Market Demand and Supply of Potatoes (Monthly)The determination of market equilibrium (potatoes: monthly)Quantity (tonnes: 000s)EDCBAabcdeSupplyDemandPrice (pesewa per kg)Quantity (tonnes: 000s)ECBAabceSupplyDemandPrice (pesewa per kg)DdSURPLUS(330 000)The determination of market equilibrium (potatoes: monthly)Quantity (tonnes: 000s)EDCBAabcdeSupplyDemandPrice (pesewa per kg)SHORTAGE(300 000)The determination of market equilibrium (potatoes: monthly)DdQeQuantity (tonnes: 000s)EBAabeSupplyDemandPrice (pesewa per kg)The determination of market equilibrium (potatoes: monthly)Demand and supply analysisEffect of shift in the demand curvePQOPe1Qe1SD1gEffect of a shift in the demand curveAn increase in demandPQOPe1Qe1SD1gEffect of a shift in the demand curvePQOPe1Qe1SD1D2gEffect of a shift in the demand curvePQOPe1Qe1SghD1D2Pe2Qe2iEffect of a shift in the demand curvePQOPe1Qe1SD1D2gA decrease in demandEffect of a shift in the demand curvePQOPe1Qe1SD1D2gPe2Qe2nmEffect of a shift in the demand curveDemand and supply analysisEffect of shift in the supply curvePQOPe1Qe1DS1gEffect of a shift in the supply curveA decrease in supplyPQOPe1Qe1DS1gEffect of a shift in the supply curvePQOPe1Qe1DS1S2gEffect of a shift in the supply curvePQOPe1Pe3Qe3Qe1DS1S2jgkEffect of a shift in the supply curveDecrease in SS, dd constantIt will lead to increase in pricePQOPe1Qe1DS1gAn increase in supplyS2Effect of a shift in the supply curveSS increases, dd constantIt will lead to decrease in pricePQOPe1Qe1DS1gS2pPe2Qe2qEffect of a shift in the supply curve akpe na mi!