TOPIC 2

DEMAND AND SUPPLY

 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.

Ceteris paribus means all other thing remains the

same
 LAW OF DEMAND

Law of demand states that the higher the price of a good,

the lower is the quantity demanded for that good and the lower

the price, the higher is the quantity demanded, ceteris paribus.

P Qd P Qd

NEGATIVE RELATIONSHIP
 DEMAND SCHEDULE AND
CURVE

Demand Schedule Demand Curve

Price
Price Quantity 5
5 2
4 downward
4 4 sloping demand
curve
3
3 6
2 8 2

1 10 1
Demand
0
Noted here the buyer is aiming to reduce
expenses so the lower the price the lesser 2 4 6 8 10 Quantity
will their expenses be. Hence buyer prefer
to buy goods that has low price.
 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.
MARKET DEMAND SCHEDULE FOR PEN

Price Quantity Demanded

(RM) Individual 1 Individual 2 Market Demand
5 2 4
4 4 5
3 6 6
2 8 7
1 10 8

6
MARKET DEMAND SCHEDULE FOR PEN
Price

1
Market Demand
curve
0
Quantity
6 9 12 15 18

Just plot the market demand. Do not plot

many individual demand when there are
many demands available
7
 DETERMINANTS OF
DEMAND

Price factor Non-price factors

Factors beside price of the good

itself:
Price of the good itself . 1) Consumers income
2) Taste and preference
This will result in 3) Expectation of future price
movement along the 4) Number of buyers
demand curve 5) Advertisement
6) Price of related goods in term of
complementary and substitute
goods

This will result in the shifting of

demand curve
 CHANGES IN QUANTITY DEMANDED VS.
CHANGES IN DEMAND
CHANGES IN QUANTITY CHANGES IN DEMAND
DEMANDED
Price
Price

D1
Do (Demand)
D0
Quantity
Quantity

Movement along DD curve Shift in the demand curve

Price changes and other factors are constant
Upward movement when the price of
the good itself increase there will be a
decrease in quantity demanded
Downward movement when the price of
the good itself decrease there will be an
increase in quantity demanded
Occurs when there are changes in other
factors but price of the good itself remains
constant/ the same
If the non-price factor results to increase in
Demand (D0 D1)
If the non-price factor results to decrease in
Demand (D1 D0)
 CHANGES IN QUANTITY DEMANDED

Demand for marker Movement upward

If the price of marker

increase from RM2 to RM3,
Price of marker the quantity demand for
marker will decrease from
15 to 10. This will result to
the movement upward along
Movement downward
4 the demand curve
Movement upward
3
Movement downward

2 If the price of marker

demand decrease from RM4 to RM3,
5 10 15 Quantity of the quantity demand for
marker marker will increase from 5
to 10. This will result to the
movement downward along
the demand curve
 CHANGES IN DEMAND
Demand of marker Consumers income
If the consumers income increase more
Price of marker goods will be demanded hence will shift
the demand curve outward, vice versa.
Shifting inward
Taste and preference
Shifting outward If the product is not desired anymore
(outdated product) it will be less
demanded by the consumer, hence will
D1
shift the demand curve inward, vice versa.
Do
Expectation of future price
Quantity of marker
If the price of the product is expected to
increase in the future, the consumer will
buy the product now in order to avoid the
future high price, hence will shift the
demand curve outward, vice versa.
 CHANGES IN DEMAND
Demand of marker Number of buyers
If the number of buyer increase more
Price of marker
product will be demanded hence will shift
Shifting inward the demand curve outward, vice versa.

Advertisement
Shifting outward If the product is being advertise regularly it
will be well known and more product will
D1 be demanded hence will shift the demand
Do curve outward, vice versa.

Quantity of marker
 CHANGES IN DEMAND
Demand of marker Price of related goods

Price of marker 1) Complementary goods

Shifting inward Complementary means the goods is being
use with another goods. For example ink
and marker are used together. A marker
Shifting outward without ink will be useless. So the price of
ink will be the price of related good for
D1 marker. If the price of ink increase,
Do people will not purchase marker
(because people use ink and marker
Quantity of marker together) hence the quantity demand
for marker will decrease. This will
result to the shifting inward of the
demand curve. Vice versa
 CHANGES IN DEMAND
Demand of marker Price of related goods
Price of marker
2) Substitute goods
Shifting inward Substitutes means the goods is not use
together. For example pen and marker are
substitute. So the price of pen will be the
Shifting outward price of related good for marker. If the
price of pen decrease, people will not
D1 purchase marker (because marker is
Do expensive and people will substitute
marker with the cheaper pen) hence
Quantity of marker the quantity demand for marker will
decrease. This will result to the
shifting inward of the demand curve.
Vice versa
 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 a particular price, ceteris paribus.
 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 the lower the

price of a good, the lower is the quantity supplied, ceteris paribus.

P Qs P Qs

POSITIVE RELATIONSHIP
 SUPPLY SCHEDULE AND
CURVE
Supply Schedule Supply Curve

Price Supply curve

5
Price Quantity
4
5 10 Upward sloping
supply curve
4 8 3

3 6 2
2 4
1
1 2
0
2 4 6 8 10 Quantity
Noted here the seller is aiming for profit,
so the higher the price the higher the
profit. Hence seller prefer to sell goods
that has high price.
INDIVIDUAL AND MARKET SUPPLY

INDIVIDUAL SUPPLY
The relationship between the quantity of a product supplied
by a single seller and its price.

MARKET SUPPLY
The relationship between the total quantity of a product
supplied by adding all the quantities supplied by all
sellers in the market and its price.
MARKET SUPPLY SCHEDULE FOR PEN

Price Quantity Supplied

(RM)
Seller A Seller B Market supply

5 10 8
4 8 7
3 6 6
2 4 5
1 2 4

19
 MARKET SUPPLY SCHEDULE FOR PEN

Price Market
supply curve

0
Quantity
6 9 12 15 18

Just plot the market supply. Do not plot

many individual supply when there are
6/19/2017
many supplies available 20
 DETERMINANTS OF
SUPPLY

Price factor Non-price factors

Factors beside price of the

Price of the good itself .
This will result in
movement along the
supply curve
good itself:
1) Cost of production
2) Technological
advancement
3) Expectation of future price
4) Number of seller
5) Government policies
6) Price of related goods

This will result in the

shifting of supply curve
 CHANGE IN QUANTITY SUPPLIED VS. CHANGE IN
SUPPLY
CHANGE IN CHANGE IN
QUANTITY SUPPLY
Price
Price SUPPLIED

s0
S s1

Quantity Quantity

Movement along supply curve Shift in the supply curve

Price changes and other factors are constant/
remains the same
Upward movement when the price of the
good itself increase there will be an increase
in quantity supplied
Downward movement when the price of
the good itself decrease there will be a
decrease in quantity supplied .
Occurs when there are changes in other factors
but the price remains constant
If the non-price factor results to increase in
supply (S0 S1)
If the non-price factor results to decrease in
Supply (S1 S0)
 CHANGES IN QUANTITY SUPPLY
Supply for marker Movement upward

If the price of marker

increase from RM2 to RM3,
Price of marker the quantity supply for
marker will increase from 5
supply to 10. This will result to the
movement upward along
4 the supply curve.
Movement downward
3
Movement downward

2 Movement upward
If the price of marker
decrease from RM4 to RM3,
the quantity supply for
5 10 15 Quantity of marker will decrease from
marker 15 to 10. This will result to
the movement downward
along the supply curve.
 CHANGES IN SUPPLY
Supply of marker Cost of production
If the cost of production increase (wages
Price of marker increase, raw materials price increase, tax
So increase) this means that it will be costly
Shifting inward
for the producer to produce a product.
s1 With the same amount of capital, the
producer cannot produce as much as they
can produce before. Hence will shift the
supply curve inward, vice versa.
Shifting outward
Technology
If there is a betterment in technology
Quantity of marker
production process will be more efficient.
More product can be produce hence will
shift the supply curve outward, vice versa.
 CHANGES IN SUPPLY
Expectation of future price
If the price of the product is expected to
Supply of marker increase in the future due to some
circumstances, seller will not supply the
Price of marker product now and wait to supply the
product in the future when the price
So
Shifting inward increase. Hence will shift the supply curve
inward, vice versa.
S1
Number of seller
If the number of seller increase more
Shifting outward product will be available hence will shift
the supply curve outward, vice versa.

Quantity of marker Government policies

If government impose taxes on the
producer, it will increase the cost of
production, hence will shift the supply
curve inward. However is the government
give subsidies to the producer it will
lessen the producers burden hence will
shift the supply curve outward.
 CHANGES IN SUPPLY
Price of related goods
Supply of marker
1) Complementary goods
Price of marker Complementary means the goods is
So
Shifting inward being use with another goods. For
example ink and marker are used
S1 together. A marker without ink will be
useless. So the price of ink will be the
price of related good for marker. If the
Shifting outward price of ink increase, producer will
produce more marker (because
they want to benefit from the high
Quantity of marker
price of ink) hence the quantity
supply for marker will increase.
This will result to the shifting
outward of the demand curve. Vice
versa
 CHANGES IN SUPPLY
Price of related goods
Supply of marker
2) Substitute goods
Price of marker Substitutes means the goods is not
So
Shifting inward use together. For example pen and
marker are substitute. So the price of
S1 pen will be the price of related good
for marker. If the price of pen
increase, producer will not produce
Shifting outward marker (because marker is
cheaper than pen, the produce
wants to benefit from the high
Quantity of marker price of pen) hence the quantity
supply for marker will decrease.
This will result to the shifting
inward of the demand curve. Vice
versa