all rights reservedmicroeconomics © oxford university press malaysia, 2008 2– 1
TRANSCRIPT
All Rights ReservedMicroeconomics© Oxford University Press Malaysia, 2008
2– 1
All Rights ReservedMicroeconomics© Oxford University Press Malaysia, 2008
2– 2
Demand and Supply2CHAPTER
All Rights ReservedMicroeconomics© Oxford University Press Malaysia, 2008
2– 3
DEFINITION OF DEMAND
Demand is defined as the ability and
willingness to buy specific quantities
of goods in a given period of time at a
particular price, ceteris paribus.
All Rights ReservedMicroeconomics© Oxford University Press Malaysia, 2008
2– 4
LAW OF DEMAND
Law of demand states that the higher the price of a good, the lower the quantity
demanded for that good and lower the price, quantity demanded is higher, ceteris paribus.
P QDD P QDD
NEGATIVE RELATIONSHIP
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2– 5
DEMAND SCHEDULE AND DEMAND CURVE
Price Quantity
9.0 2
8.5 4
8.0 6
7.5 8
7.0 10
Demand Schedule
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1012
2 4 6 8 10
DD
Demand Curve
D
D
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2– 6
INDIVIDUAL AND MARKET DEMAND
INDIVIDUAL DEMAND
The relationship between the quantity of a good demanded by a single individual and its price.
MARKET DEMAND
The relationship between the total quantity of a good demanded by adding all the quantities
demanded by all consumers in the market and its price.
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CHANGE IN QUANTITY DEMANDED CHANGE IN DEMAND
DD1
Movement along the demand curve Price changes and other factors are constant Upward movement: Decrease in quantity
demanded (contraction) Downward movement: Increase in quantity
demanded (expansion)
Shift in the demand curve
Occurs when changes in other factors and price remains constant
Increase in demand (DD0 DD1 )
Decrease in demand (DD1 DD0 )
DD Quantity
Price
DD0Quantity
Price
CHANGES IN DEMAND AND QUANTITY DEMANDED
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2– 8
Festive Seasons and
Climate
Festive Seasons and
Climate
Price of Related Goods
Price of Related Goods
Consumers’ Income
Consumers’ Income Tastes and
FashionsTastes and Fashions
Population or Number of
Buyers
Population or Number of
Buyers
ExpectationExpectationAdvertisementAdvertisement
THE DETERMINANTS OF DEMAND
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Exceptional demand is against the Law of Demand where as price increases, demand will also
increase and vice versa
EMERGENCIES
SPECULATION
STATUS SYMBOL GODS
GIFFEN GOODS
EXCEPTIONAL DEMAND
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Derived demand is the demand for a good which is derived from other goods.
INTERRELATED DEMAND
The demand for a good is also affected by the price of its substitute or complementary goods.
Cross demand can be divided into: joint demand and competitive demand.
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Supply is defined as theability and willingness to sell or
produce a particular product and services in a given period of time at
particular price, ceterisparibus.
DEFINITION OF SUPPLY
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2– 12
LAW OF SUPPLY
Law of supply states that the higher the price of a good, the greater is the quantity supplied for that good and lower the price, quantity supplied is lower, ceteris paribus.
P Qss P Qss
POSITIVE RELATIONSHIP
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SUPPLY SCHEDULE AND SUPPLY CURVE
Price Quantity
9.0 10
8.5 8
8.0 6
7.5 4
7.0 2
Supply Schedule SupplyCurve
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1012
1 2 3 4 5
SS
S
S
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INDIVIDUAL AND MARKET SUPPLY
INDIVIDUAL SUPPLY
The relationship between quantity of a product supplied by a single seller and its price.
MARKET SUPPLYThe relationship between total quantity of a product
supplied by adding all the quantities supplied by all sellers in the market and its price.
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2– 15
CHANGE IN SUPPLYCHANGE IN QUANTITY SUPPLIED
CHANGES IN QUANTITY SUPPLIED AND CHANGE IN SUPPLY
Movement along the supply curve Price changes and other factors are constant Downward movement: Decrease in quantity
supplied (contraction) Upward movement: Increase in quantity
supplied (expansion)
Shift in the supply curveOccurs when changes in other factors
and price remains constantIncrease in supply (SS0 SS1 ) Decrease in supply (SS1 SS0 )
SSQuantity
Price
SS1
SS0
Quantity
Price
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Exceptional supply is against the Law of Supply where as price increases, the quantity supplied decreases and vice versa
Income Effect
(Exceptional Supply Curve)
Substitution Effect
EXCEPTIONAL SUPPLY
Wage Rate
Labour4 50 1 2 3 6
15
5
10
20
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Price of Related Goods
Price of Related Goods
Cost of Production
Cost of Production
ExpectationExpectation
Technological AdvancementTechnological Advancement
Number of Sellers
Number of Sellers
Government Policies
Government Policies
THE DETERMINANTS OF SUPPLY