Demand, Supply and Price
Market Buyers- households/demanders Suppliers- producers/firms Demand-The ability and willingness to buy specific quantities of good at alternate prices in a given time period Or the desire to buy a product, which is backed up by willingness and ability to pay for the it. • Quantity demanded- the amount of a product that the consumers wish to purchase. • Demand schedule- a table which shows the quantities of a good, a consumer is willing and able to buy at alternate prices, in a given time period. • • • •
• Individual demand schedulePrice 0.5 1 1.5 2 2.5 3 Quantity (consumer A) 6 5 4 3 2 1
• Market demand schedule- a table that shows the quantity of ...view middle of the document...
Determinants of demand (Non-price determinants of demand) Qd=f(tastes and preferences, income of the consumer, prices of related goods, expectations, number of buyers) 1. tastes and preferences-likes and dislikes of consumers. It is also influenced by advertisement. 2. income-as income increases demand also increases 3. prices of related goods- a good is related to another by being a substitute or complement. substitute goods-goods that can be substituted for each other. When the price of good X increases, the demand for good Y increases.
complementary goods- goods that are consumed together or in combination. When price of good X rises, the demand for good Y falls. 4. expectations- expectation of a price rise in the future may cause current demand to increase. Eg. Financial instruments, agricultural commodities 5. number of buyers- if it increases demand also increases and vice versa. A demand curve is valid only so long as the underlying determinants of demand remain constant. But these determinants of demand can and do change. Thus, if ceteris paribus is violated, demand curve will shift to new position.
Change in demand- shift in demand curve due to changes in other factors, and price is held constant. increase in demand-represented by a rightward shift of the demand curve decrease in demand-represented by a leftward shift of the demand curve
• Shifts in the demand curve - Any change that raises the quantity that buyers wish to purchase at a given price shifts the demand curve to the right. Any change that lowers the quantity that buyers wish to purchase at a given price shifts the demand curve to the left. • In short, the change in the determinants of quantity demanded is represented as follows:
Identify whether the following causes a movement or shift in the demand curve? • An increase in income of the consumer • A policy to discourage smoking • A tax that raises the price of cigarettes
• Supplier’s/firms profit maximization • Quantity supplied-amount of product the firms are able and willing to offer for sale. • Qs=f (price) • Supply schedule- a table that shows the relationship between the price of a good and the quantity supplied. • Individual supply scheduleW Y
• Market supply schedule- the quantity supplied in a market is the sum of the quantities supplied by all the sellers. • Supply curve- a graph of the relationship between the price of a good and the quantity supplied.
• Law of supply-holding other things constant, the quantity supplied increases with increase in its own price in a given time period. • positive relationship between price and quantity supplied. • Change in quantity supplied- movements along the supply curve. An upward movement along the supply curve due to a price rise increases the quantity supplied. A downward movement along the supply curve due to a price fall decreases the quantity supplied.
Determinants of supply
• Qs=f (price of inputs, technology,...