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Demand

&
Supply
NUR ILHANI BINTI AB HALIL

Introduction
Demands

Supply

Willingness and desire of How much the markets


consumers to buy
can offer, over a specific
products or services
time period

Law of Demand
The inverse relationship of the price and quantity
demanded, while all other variables remain constant
(ceteris paribus).

If P is high, the Q
demand decreases
and if the P
decreases, then the
Q demand will
increase

Demand Curve- Cookies


[Famous Amos]

Price

Cookies

30

Price

Quantit
y
Deman
ded

RM25

20

RM20

40

RM15

60

RM10

80

RM5

100

25
20
15
10
5
0
20

Quantity
40

60

80

100

Changes in Demand
vs.
Changes in Quantity
Demanded
Demand
A shift in the demand
curve (Left or right).
Quantity Demanded
A movement along the
demand curve (up or
down). A change of
quantity demanded occurs
on the same demand
curve.

Price

S
P2

P1
D2
D1
Q1

Q2

Quantity

Law of Supply
increase in market price will result in
an increase in the quantity supplied,
all other factors held constant
(including cost of production)
If P is high, the Q demand will be
increased

Supply Curve Cookies


[Famous Amos]
Quantity supplied moves in the same
direction as price.
Thesupplycurve is an upward sloping curve.
Producers are willing to increase production
at higher prices to increase profit.
Price
30
25
20
15
10
5
0
20

Cookies

40

60

80

100

Quantity

Price

Quantit
y
Deman
ded

RM5

20

RM10

40

RM15

60

RM20

80

Shifts in Demand Curve


Price

Increase in Demand

The market does not have to stay


fix all the time
changes in demand curve by
shifting in or shifting out
D

Determinants of Demands:

D
1

Quantity

Pric Decrease in Demand


e

D
1

D
o

Quantit
y

in income
(normal/inferior)
2.
in taste/preferences
3.
in expectations
4.
in market size
(population)
5.
in price of related goods
(substitutes /
complements)
1.

Shifts in Supply Curve


* Changes in supply shifts in the supply curve

Increase in Supply
Price

S
o

S1

Determinants of Supply/Supply Shifters

Quantity
Price

S1

S
o

Decrease in Supply

Quantity

1.
2.
3.
4.
5.

in technology
in input prices
in expectations
in number of producers
in price of related goods
(substitutes /
complements)

The Market for Famous Amous Cookies


Equilibrium Prices & Quantity

Price

Supply Curve (So)

Eq. point is where demand and supply meet.


Demand=Supply

P*

Shortage: Quantity demanded is higher


than the available supply

Demand Curve (Do)

Surplus: excess of production or supply over


demand

Quantity

q*

Price

Price

Surplu
s

Supply Curve (So)

Supply Curve (So)

P high
P*

P*

P low

P low

Shorta
ge

Demand Curve (Do)


q.s
low

q*

q.d
low

Quantity

q.s
low

Demand Curve (Do)

q.d
low

Quantity

Conclusion
prices automatically move up and
down to ensure that there is enough
supply to meet demand, and enough
demand to meet supply.
the price is not based on how much it
costs to get the product to market, it is
entirely dependent on how much supply
there is and how much demand