Microeconomics © Oxford University Press Malaysia, 2008 All Rights Reserved 2– 1 CHAPTER 2 Demand and Supply Microeconomics © Oxford University Press Malaysia, 2008 All Rights Reserved 2–
Download ReportTranscript Microeconomics © Oxford University Press Malaysia, 2008 All Rights Reserved 2– 1 CHAPTER 2 Demand and Supply Microeconomics © Oxford University Press Malaysia, 2008 All Rights Reserved 2–
Slide 1
Microeconomics
© Oxford University Press Malaysia, 2008
All Rights Reserved
2– 1
Slide 2
CHAPTER
2 Demand and Supply
Microeconomics
© Oxford University Press Malaysia, 2008
All Rights Reserved
2– 2
Slide 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.
Microeconomics
© Oxford University Press Malaysia, 2008
All Rights Reserved
2– 3
Slide 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
Microeconomics
© Oxford University Press Malaysia, 2008
All Rights Reserved
2– 4
Slide 5
DEMAND SCHEDULE AND
DEMAND CURVE
Demand Schedule
Price
Quantity
9.0
2
8.5
4
8.0
6
7.5
8
7.0
10
Demand Curve
12
10
8
6
4
2
0
D
DD
D
2
Microeconomics
© Oxford University Press Malaysia, 2008
4
6
8
10
All Rights Reserved
2– 5
Slide 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.
Microeconomics
© Oxford University Press Malaysia, 2008
All Rights Reserved
2– 6
Slide 7
CHANGES IN DEMAND AND
QUANTITY DEMANDED
CHANGE IN DEMAND
CHANGE IN QUANTITY DEMANDED
Price
Price
DD1
DD
Quantity
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)
Microeconomics
© Oxford University Press Malaysia, 2008
DD0
Quantity
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 )
All Rights Reserved
2– 7
Slide 8
THE DETERMINANTS OF DEMAND
Consumers’
Income
Price of
Related Goods
Tastes and
Fashions
Population or
Number of
Buyers
Festive
Seasons and
Climate
Microeconomics
© Oxford University Press Malaysia, 2008
Advertisement
Expectation
All Rights Reserved
2– 8
Slide 9
EXCEPTIONAL DEMAND
Exceptional demand is against the Law of
Demand where as price increases, demand will also
increase and vice versa
GIFFEN GOODS
STATUS SYMBOL GODS
SPECULATION
EMERGENCIES
Microeconomics
© Oxford University Press Malaysia, 2008
All Rights Reserved
2– 9
Slide 10
INTERRELATED DEMAND
CROSS 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.
DERIVED DEMAND
Derived demand is the demand for a good which
is derived from other goods.
Microeconomics
© Oxford University Press Malaysia, 2008
All Rights Reserved
2– 10
Slide 11
DEFINITION OF SUPPLY
Supply is defined as the
ability and willingness to sell or
produce a particular product and
services in a given period of time at
particular price, ceteris
paribus.
Microeconomics
© Oxford University Press Malaysia, 2008
All Rights Reserved
2– 11
Slide 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
Microeconomics
© Oxford University Press Malaysia, 2008
All Rights Reserved
2– 12
Slide 13
SUPPLY SCHEDULE AND
SUPPLY CURVE
Supply Schedule
Price
Quantity
9.0
10
8.5
8
8.0
6
7.5
4
7.0
2
SupplyCurve
12
10
8
6
4
2
0
S
SS
S
1
Microeconomics
© Oxford University Press Malaysia, 2008
2
3
4
5
All Rights Reserved
2– 13
Slide 14
INDIVIDUAL AND MARKET SUPPLY
INDIVIDUAL SUPPLY
The relationship between quantity of a product
supplied by a single seller and its price.
MARKET SUPPLY
The relationship between total quantity of a product
supplied by adding all the quantities supplied by
all sellers in the market and its price.
Microeconomics
© Oxford University Press Malaysia, 2008
All Rights Reserved
2– 14
Slide 15
CHANGES IN QUANTITY SUPPLIED
AND CHANGE IN SUPPLY
CHANGE IN QUANTITY SUPPLIED
Price
CHANGE IN SUPPLY
Price
SS0
SS
Quantity
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)
Microeconomics
© Oxford University Press Malaysia, 2008
SS1
Quantity
Shift in the supply curve
Occurs when changes in other factors
and price remains constant
Increase in supply (SS0 SS1 )
Decrease in supply (SS1 SS0 )
All Rights Reserved
2– 15
Slide 16
EXCEPTIONAL SUPPLY
Exceptional supply is against the Law of Supply where as price
increases, the quantity supplied decreases and vice versa
Wage Rate
20
Income Effect
(Exceptional Supply
Curve)
15
10
Substitution Effect
5
0
1
2
Microeconomics
© Oxford University Press Malaysia, 2008
3
4
5
6
Labour
All Rights Reserved
2– 16
Slide 17
THE DETERMINANTS OF SUPPLY
Cost of
Production
Government
Policies
Number of
Sellers
Microeconomics
© Oxford University Press Malaysia, 2008
Price of Related
Goods
DETERMINANT
S OF SUPPLY
Expectation
Technological
Advancement
All Rights Reserved
2– 17
Microeconomics
© Oxford University Press Malaysia, 2008
All Rights Reserved
2– 1
Slide 2
CHAPTER
2 Demand and Supply
Microeconomics
© Oxford University Press Malaysia, 2008
All Rights Reserved
2– 2
Slide 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.
Microeconomics
© Oxford University Press Malaysia, 2008
All Rights Reserved
2– 3
Slide 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
Microeconomics
© Oxford University Press Malaysia, 2008
All Rights Reserved
2– 4
Slide 5
DEMAND SCHEDULE AND
DEMAND CURVE
Demand Schedule
Price
Quantity
9.0
2
8.5
4
8.0
6
7.5
8
7.0
10
Demand Curve
12
10
8
6
4
2
0
D
DD
D
2
Microeconomics
© Oxford University Press Malaysia, 2008
4
6
8
10
All Rights Reserved
2– 5
Slide 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.
Microeconomics
© Oxford University Press Malaysia, 2008
All Rights Reserved
2– 6
Slide 7
CHANGES IN DEMAND AND
QUANTITY DEMANDED
CHANGE IN DEMAND
CHANGE IN QUANTITY DEMANDED
Price
Price
DD1
DD
Quantity
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)
Microeconomics
© Oxford University Press Malaysia, 2008
DD0
Quantity
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 )
All Rights Reserved
2– 7
Slide 8
THE DETERMINANTS OF DEMAND
Consumers’
Income
Price of
Related Goods
Tastes and
Fashions
Population or
Number of
Buyers
Festive
Seasons and
Climate
Microeconomics
© Oxford University Press Malaysia, 2008
Advertisement
Expectation
All Rights Reserved
2– 8
Slide 9
EXCEPTIONAL DEMAND
Exceptional demand is against the Law of
Demand where as price increases, demand will also
increase and vice versa
GIFFEN GOODS
STATUS SYMBOL GODS
SPECULATION
EMERGENCIES
Microeconomics
© Oxford University Press Malaysia, 2008
All Rights Reserved
2– 9
Slide 10
INTERRELATED DEMAND
CROSS 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.
DERIVED DEMAND
Derived demand is the demand for a good which
is derived from other goods.
Microeconomics
© Oxford University Press Malaysia, 2008
All Rights Reserved
2– 10
Slide 11
DEFINITION OF SUPPLY
Supply is defined as the
ability and willingness to sell or
produce a particular product and
services in a given period of time at
particular price, ceteris
paribus.
Microeconomics
© Oxford University Press Malaysia, 2008
All Rights Reserved
2– 11
Slide 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
Microeconomics
© Oxford University Press Malaysia, 2008
All Rights Reserved
2– 12
Slide 13
SUPPLY SCHEDULE AND
SUPPLY CURVE
Supply Schedule
Price
Quantity
9.0
10
8.5
8
8.0
6
7.5
4
7.0
2
SupplyCurve
12
10
8
6
4
2
0
S
SS
S
1
Microeconomics
© Oxford University Press Malaysia, 2008
2
3
4
5
All Rights Reserved
2– 13
Slide 14
INDIVIDUAL AND MARKET SUPPLY
INDIVIDUAL SUPPLY
The relationship between quantity of a product
supplied by a single seller and its price.
MARKET SUPPLY
The relationship between total quantity of a product
supplied by adding all the quantities supplied by
all sellers in the market and its price.
Microeconomics
© Oxford University Press Malaysia, 2008
All Rights Reserved
2– 14
Slide 15
CHANGES IN QUANTITY SUPPLIED
AND CHANGE IN SUPPLY
CHANGE IN QUANTITY SUPPLIED
Price
CHANGE IN SUPPLY
Price
SS0
SS
Quantity
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)
Microeconomics
© Oxford University Press Malaysia, 2008
SS1
Quantity
Shift in the supply curve
Occurs when changes in other factors
and price remains constant
Increase in supply (SS0 SS1 )
Decrease in supply (SS1 SS0 )
All Rights Reserved
2– 15
Slide 16
EXCEPTIONAL SUPPLY
Exceptional supply is against the Law of Supply where as price
increases, the quantity supplied decreases and vice versa
Wage Rate
20
Income Effect
(Exceptional Supply
Curve)
15
10
Substitution Effect
5
0
1
2
Microeconomics
© Oxford University Press Malaysia, 2008
3
4
5
6
Labour
All Rights Reserved
2– 16
Slide 17
THE DETERMINANTS OF SUPPLY
Cost of
Production
Government
Policies
Number of
Sellers
Microeconomics
© Oxford University Press Malaysia, 2008
Price of Related
Goods
DETERMINANT
S OF SUPPLY
Expectation
Technological
Advancement
All Rights Reserved
2– 17