Supplementary Notes for Topic 2: Demand and Supply

Law of Demand
When the _______ of the good rises, the _____________ of that good decreases,
vice versa, holding other things constant.

Change in Quantity Demanded (∆ in Qd), the ONLY reason is _______ change.

x
Market title
Price Quantity
Price ($) Demanded
A change in Qd 0 40
20 30
No change in D
40 20
60 10

Price , Qd , _______ movement along the SAME D curve

Price , Qd , _______ movement along the SAME D curve
D1
Quantity

Change in Demand (∆ in D), the reason can be ________ except PRICE change,
including

1. Prices of related goods (substitute vs complement)

2. Expected future prices of goods
3. Change in Income (normal good vs inferior good)
4. Expected Change in future income and credit
5. Number of buyers
6. Preferences

Market title Price Quantity New Qd New Qd

Price ($) Demanded ( in D) ( in D)
0 40 60 35
20 30 50 25
40 20 40 15
60 10 30 5
For some reasons (not price reason), demand (D) , _______
shift of the D curve to D2
For some reasons (not price reason), demand (D) , ________
shift of the D curve to D3
D1
Quantity

1
 Law of Supply
When the __________ of the good rises, the ________________ of that good
increases, vice versa, holding other things constant.

Change in Quantity Supplied (∆ in Qs), the only reason is ________ change.

Market title
Price Quantity
S Price ($) Supplied
10 10
30 20
50 30
70 40
A change in Qs
Price , Qs , ________ movement along the SAME S curve
Price , Qs , ________ movement along the SAME S curve
No change in S

Quantity

Change in Supply (∆ in S), the reason can be __________ except PRICE change,
including
1. Prices of related goods – substitutes in production vs complements in production
2. Prices of resources and other inputs
3. Expected future prices
4. Number of sellers
5. Productivity (or advancement of technology)
Market title
Price
S1 Quantity New Qs New Qs
Price ($) Supplied ( in S) ( in S)
10 10 20 0
30 20 30 10
50 30 40 20
70 40 50 30

For some reasons (not price reason), supply (S) ,

___________ shift of the S curve to S2
For some reasons (not price reason), supply (S) ,
___________ shift of the S curve to S3
Quantity

2
Explain the effects of changes in demand AND/OR changes in supply
Figures Demand Supply Market
Outcomes

Increase in demand No change in supply

Pe
Qe

Decrease in demand No change in supply

Pe
Qe

No change in demand Increase in supply

Pe
Qe

No change in demand Decrease in supply

Pe
Qe

Increase in demand Increase in supply

-P↑ -P↓ Pe
- Q↑ -Q↑ Qe

Decrease in demand Decrease in supply

-P↓ - P↑ Pe
- Q↓ - Q↓ Qe

3
 Increase in demand Decrease in supply
- P↑ - P↑ Pe
- Q↑ - Q↓ Qe

Decrease in demand Increase in supply

- P↓ - P↓ Pe
- Q↓ - Q↑ Qe

Six-Step model for D & S analysis

Identify KEY PRODUCT*** from the question, then,

Step 1 Quote the information from the question

Step 2 Identify the factor affecting D or S, explain?
Step 3 D/S increases or decreases?
Step 4 D/S curve shifts to right or left?
Step 5 What happen to the new Pe?
Step 6 What happen to the new Qe?