Slide 1

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Slide 2

CHAPTER

2 Demand and Supply

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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.

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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
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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

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4

6

8

10
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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.
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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 )
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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
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Expectation

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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
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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.
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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
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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
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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

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3

4

5
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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
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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 )

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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

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4

5

6

Labour

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Slide 17

THE DETERMINANTS OF SUPPLY
Cost of
Production

Government
Policies

Number of
Sellers
Microeconomics
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Price of Related
Goods

DETERMINANT
S OF SUPPLY

Expectation

Technological
Advancement
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