Demand & Supply :Demand & Supply Edited By :- Krishan Jangra
MARKETS DEFINED :MARKETS DEFINED MARKETS
DEMAND DEFINED :$5
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1 DEMAND DEFINED 10
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80 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.
LAW OF DEMAND :LAW OF DEMAND As Price Falls…
…Quantity Demanded Rises
As Price Rises…
…Quantity Demanded Falls An inverse relationship exists between price and quantity demanded
LAW OF DEMAND :Diminishing Marginal Utility LAW OF DEMAND
LAW OF DEMAND :Diminishing Marginal Utility LAW OF DEMAND Income Effect
LAW OF DEMAND :Diminishing Marginal Utility LAW OF DEMAND Income Effect
Substitution Effect
LAW OF DEMAND :Diminishing Marginal Utility
Income Effect
Substitution Effect LAW OF DEMAND Demand Curve
Individual and Market Demand
GRAPHING DEMAND :GRAPHING DEMAND P Q o $5
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1 $5
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1 10
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80 Price of Corn Quantity of Corn CORN Plot the Points 10 20 30 40 50 60 70 80
GRAPHING DEMAND :55 P Q o $5
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1 $5
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1 10
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80 Price of Corn Quantity of Corn CORN Plot the Points 10 20 30 40 50 60 70 80 GRAPHING DEMAND
GRAPHING DEMAND :35 P Q o $5
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1 $5
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1 10
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80 Price of Corn Quantity of Corn CORN Plot the Points 10 20 30 40 50 60 70 80 GRAPHING DEMAND
GRAPHING DEMAND :P Q o $5
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2
1 $5
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2
1 10
20
35
55
80 Price of Corn Quantity of Corn CORN Plot the Points 10 20 30 40 50 60 70 80 GRAPHING DEMAND
GRAPHING DEMAND :P Q o $5
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1 $5
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1 10
20
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55
80 Price of Corn Quantity of Corn CORN Plot the Points 10 20 30 40 50 60 70 80 GRAPHING DEMAND
GRAPHING DEMAND :P Q o $5
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1 $5
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1 10
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80 D Price of Corn Quantity of Corn CORN Connect the Points 10 20 30 40 50 60 70 80 GRAPHING DEMAND
GRAPHING DEMAND :P Q o $5
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1 $5
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1 10
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80 D Price of Corn Quantity of Corn CORN 10 20 30 40 50 60 70 80 What if
Demand
Increases? GRAPHING DEMAND
GRAPHING DEMAND :P Q o $5
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3
2
1 $5
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2
1 D Price of Corn Quantity of Corn CORN 10 20 30 40 50 60 70 80 D’ Increase
in
Demand Increase
in Quantity
Demanded 10
20
35
55
80 30
40
60
80
+ GRAPHING DEMAND
GRAPHING DEMAND :P Q o $5
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1 $5
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1 10
20
35
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80 D Price of Corn Quantity of Corn CORN 10 20 30 40 50 60 70 80 What if
Demand
Decreases? GRAPHING DEMAND
GRAPHING DEMAND :P Q o $5
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3
2
1 $5
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2
1 10
20
35
55
80 D Price of Corn Quantity of Corn CORN 10 20 30 40 50 60 70 80 --
10
20
40
60 D’ Decrease
in
Demand Decrease
in Quantity
Demanded GRAPHING DEMAND
DETERMINANTS OF DEMAND :DETERMINANTS OF DEMAND Tastes
Number of Buyers
Income
Normal (Superior) & Inferior Goods
Prices of Related Goods
Substitutes & Complements
Unrelated Goods
Expectations
SUPPLY DEFINED :SUPPLY DEFINED $1
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5 CORN 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. 5
20
35
50
60
LAW OF SUPPLY :LAW OF SUPPLY As Price Rises…
…Quantity Supplied Rises
As Price Falls…
…Quantity Supplied Falls A direct relationship exists between price and quantity supplied
GRAPHING SUPPLY :5 P Q o $5
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1 10 20 30 40 50 60 70 80 $5
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1 60
50
35
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5 Price of Corn Quantity of Corn CORN Plot the Points GRAPHING SUPPLY
GRAPHING SUPPLY :P Q o $5
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2
1 10 20 30 40 50 60 70 80 $5
4
3
2
1 60
50
35
20
5 Price of Corn Quantity of Corn CORN Plot the Points GRAPHING SUPPLY
GRAPHING SUPPLY :35 P Q o $5
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2
1 10 20 30 40 50 60 70 80 $5
4
3
2
1 60
50
35
20
5 Price of Corn Quantity of Corn CORN Plot the Points GRAPHING SUPPLY
GRAPHING SUPPLY :P Q o $5
4
3
2
1 10 20 30 40 50 60 70 80 $5
4
3
2
1 60
50
35
20
5 Price of Corn Quantity of Corn CORN Plot the Points GRAPHING SUPPLY
GRAPHING SUPPLY :P Q o $5
4
3
2
1 10 20 30 40 50 60 70 80 $5
4
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2
1 60
50
35
20
5 Price of Corn Quantity of Corn CORN Plot the Points GRAPHING SUPPLY
GRAPHING SUPPLY :S P Q o $5
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1 10 20 30 40 50 60 70 80 $5
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1 60
50
35
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5 Price of Corn Quantity of Corn CORN Connect the Points GRAPHING SUPPLY
GRAPHING SUPPLY :S P Q o $5
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2
1 10 20 30 40 50 60 70 80 $5
4
3
2
1 60
50
35
20
5 Price of Corn Quantity of Corn CORN What if
Supply
Increases? GRAPHING SUPPLY
GRAPHING SUPPLY :S P Q o $5
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1 10 20 30 40 50 60 70 80 Price of Corn Quantity of Corn $5
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1 60
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5 CORN 80
70
60
45
30 S’ Increase
in
Supply Increase
in Quantity
Supplied GRAPHING SUPPLY
GRAPHING SUPPLY :S P Q o $5
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3
2
1 10 20 30 40 50 60 70 80 $5
4
3
2
1 60
50
35
20
5 Price of Corn Quantity of Corn CORN What if
Supply
Decreases? GRAPHING SUPPLY
GRAPHING SUPPLY :S P Q o $5
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3
2
1 10 20 30 40 50 60 70 80 $5
4
3
2
1 60
50
35
20
5 Price of Corn Quantity of Corn CORN S’ 45
30
20
0
-- Decrease
in
Supply Decrease
in Quantity
Supplied GRAPHING SUPPLY
DETERMINANTS OF SUPPLY :DETERMINANTS OF SUPPLY Resource Prices
Technology
Taxes & Subsidies
Prices of Other Goods
Price Expectations
Number of Sellers
DETERMINANTS OF SUPPLY :DETERMINANTS OF SUPPLY Resource Prices
Technology
Taxes & Subsidies
Prices of Other Goods
Price Expectations
Number of Sellers Combining
with
Demand
MARKET DEMAND & SUPPLY :MARKET DEMAND & SUPPLY $5
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80 $5
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5 200
B
U
Y
E
R
S MARKET
DEMAND 2,000
4,000
7,000
11,000
16,000 200
S
E
L
L
E
R
S 12,000
10,000
7,000
4,000
1,000 MARKET
SUPPLY EQUILIBRIUM Graphically… x x
MARKET DEMAND & SUPPLY :7 S P Q o $5
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1 2 4 6 8 10 12 14 16 $5
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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 Price of Corn Quantity of Corn CORN
MARKET CORN
MARKET Market
Clearing
Equilibrium MARKET DEMAND & SUPPLY
MARKET DEMAND & SUPPLY :7 S P Q o $5
4
3
2
1 2 4 6 8 10 12 14 16 $5
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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 Price of Corn Quantity of Corn CORN
MARKET CORN
MARKET Surplus At a $4 price
more is being
supplied than
demanded MARKET DEMAND & SUPPLY
MARKET DEMAND & SUPPLY :11 7 S P Q o $5
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1 2 4 6 8 10 12 14 16 $5
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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 Price of Corn Quantity of Corn CORN
MARKET CORN
MARKET At a $2 price
more is being
demanded than
supplied Shortage MARKET DEMAND & SUPPLY
MARKET DEMAND & SUPPLY :11 7 S P Q o $5
4
3
2
1 2 4 6 8 10 12 14 16 $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 Price of Corn Quantity of Corn CORN
MARKET CORN
MARKET Shortage MARKET DEMAND & SUPPLY Surplus
MARKET EQUILIBRIUM :MARKET EQUILIBRIUM Equilibrium Price & Quantity
Rationing Function of Prices
Changes in Demand
Changes in Quantity Demanded
Changes in Supply
Changes in Quantity Supplied
Complex Cases :Complex Cases Supply Increases; Demand Decreases
Prices Decrease
Quantity Indeterminate
Supply Decreases; Demand Increases
Price Increases
Quantity Indeterminate Multiple Shifts…
Complex Cases :Complex Cases Supply Increases; Demand Increases
Prices Indeterminate
Quantity Increases
Supply Decreases; Demand Decreases
Price Indeterminate
Quantity Decreases Multiple Shifts…
Government Set Prices :Government Set Prices Price Ceilings
Shortages
Rationing Problem
Black Markets
Rent Controls
Price Floors
Surpluses
Slide 43:Price Ceiling A maximum price that sellers may charge for a good, usually set by government. Excess Demand (Shortage) Created by a Price Ceiling
Price ceiling :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.
Slide 45: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