Supply and Demand

Rini Novrianti Sutardjo Tui

Supply Demand
Analysis

Supply
Demand
Analysis

Understanding and predicting how changing world

economic conditions affect market price and production
Evaluating the impact of government price controls,
minimum wages, price supports, and production incentives

Determining how taxes, subsidies, tariffs, and import

quotas affect consumers and producers

Income and Wealth

Difference
of income and wealth

Income is the sum

of all households
wages, salaries, profits,
interest payments,
rents, and other forms
of earnings in a given
period of time. It is a
flow measure.

Wealth or net
worth, is the total value
of what a household
owns minus what it
owes. It is a stock
measure.

The Demand Curve

Demand Curve
Relationship between the
quantity of a good that
consumers are willing to buy
and the price of the good.
The demand curve is
downward sloping; holding
other things equal, consumers
will want to purchase more of
a good as its price goes down.

A higher income level shifts

the demand curve to the right
(from D to D).

QD QD (P)

Determinants of
Demand
The price of the product

Expectations of future
income, wealth, and price

Tastes and preferences

Income available

Demand

Amounts of
accumulated wealth

Price of related product

Shift of Demand and

Movement along Demand
Curve

Change in price of a good

or service leads to change in
quantity demanded.
Change in income,
preferences, or
prices of other goods or
services leads to change in
demand.

Future Demand
Reduce

consumption

or hold
consumptio
n steady

Demand
Apply new
technology
: in finding
and
extracting
resources

The Supply Curve

Supply Curve
Relationship between the
quantity of a good that
producers are willing to sell
and the price of the good.
The supply curve is upward
sloping: The higher the price,
the more firms are able and
willing to produce and sell.
If production costs fall, the
supply curve then shifts to the
right (from S to S).

QS QS (P)

Determinants of
Supply
The cost of
producing:
The price of required
inputs and the
technologies
The price of the
good or service

The price of related

products

Supply

A Change in Supply and A

Change in Quantity Supplied

Change in price of a
good or service leads to
change in quantity supplied.

Change in costs, input

prices, technology, or
prices of related goods
and services leads to change in
supply.

Future Supply
Physical availability of mineral resources in the nature

Short Term

Production
capacity

Processing
capacity

Long Term

Successful
exploration

Technology
development

The Market Mechanism

When the demand curve shifts to the
right, the market clears at a higher price P3
and a larger quantity Q3.

When the supply curve shifts to the

right, the market clears at a lower price P3
and a larger quantity Q3.

Market Equilibrium
An equilibrium is the
condition that exists when
quantity supplied and
quantity demanded are equal.
At any price level other than
P0, the wishes of buyers and
sellers do not coincide.
At equilibrium, there is no
tendency for the market
price to change.

Market Disequilibria
Excess demand, or shortage, is the
condition that exists when quantity demanded
exceeds quantity supplied at the current price.
Therefore, price tends to rise.

Excess supply, or surplus, is the condition

that exists when quantity supplied exceeds
quantity demanded at the current price.
Therefore, price tends to fall.