Economi

csShor
tnot
e
 Changesindemand:achangeinanydeter
minantofdemand(Tast
eorpr ef
erence,
i
ncomeofconsumer,pri
ceofrel
atedgood,consumerexpect
ati
onsofincomeor
pr
ice.
..
)—exceptf
ort
hegood‘spri
cecausesthedemandcur v
etoshif
t.

 t
hedemandcur
veshi
ft
sri
ght
war
dIfbuy
erschooset
opur
chasemor
eatanypr
ice,
—an
i
ncr
easei
ndemand.

 thedemandcur
veshi
ftsl
eft
war
dIfbuy
erschooset
opur
chasel
essatanypr
ice,
—a
decreasei
ndemand.

 I
ftwogoodsaresubsti
tut
es,
t henpri
ceofoneandthedemandf ortheot
heraredir
ect
ly
r
elat
ed.(
Ifpr
iceofonegoodincreasethedemandofSubst
it
utegoodwil
li
ncrease)

 I
ftwogoodsar ecomplement
s,t
henpri
ceofoneandthedemandfort
heotherar
e
i
nversel
yrel
ated.
(Ift
hepri
ceofonegoodi
ncreaset
hedemanofcomplementgoodi
s
decr
ease)

 Higherpri
ceexpect
ati
onwill
i easedemandwhi
ncr leal
owerf
utur
epr
iceexpect
ati
onwi
l
l
decreasethedemandfort
hegood.

 Sincemarketdemandist
hehori
zont
alsum ofi
ndi
vi
dualdemand,
anincr
easeinthe
numberofbuy er
swil
li
ncr
easedemandwhil
eadecreaseint
henumberofbuyer
swill
decreasedemand.

 Pr
iceelast
ici
tyofdemandmeansdegr
eeofr
esponsi
venessofdemandt
ochangei
n
pr
ice.

 Pri
ceel
ast
ici
tyofdemandi
sameasur
eofhowmucht
hequant
it
ydemandedofagood
respondstoachangeinthepr
iceoft
hatgood,comput
edastheper
cent
agechangei
n
quanti
tydemandeddiv
idedbytheper
centagechangei
npr
ice.

o(
%∆Q/
%∆p)
 El
asti
cityofdemandisusual
l
yanegati
v hel
enumberbecauseoft awofdemand.I
fthe
pr
iceelasti
cit
yofdemandisposi
ti
vet
heproducti
sinf
eri
or.

 i
)If|
£|>1demandi
ssai
dtobeel
ast
icandt
hepr
oducti
sluxur
y
pr
oduct

 I
f|£|<1(
+)demandi
sinel
ast
icandt
hepr
oducti
snecessi
ty

 I
f|£|<1(
-)demani
sinel
ast
ic

 I
f|£|=0demandi
sper
fect
lyi
nel
ast
ic

 I
f|£|=1demandi
suni
tar
y

 I
f|£|
=inf
ini
tydemani
sper
fect
lyel
ast
ic

ByTami
ratTi
l
ahun(
JimmaUni
ver
sit
y)
 Economi
csShor
tnot
e

 Thesuppl
yisel
ast
icwhenasmal
lchangeonpr
icel
eadst
ogr
eatchangei
nsuppl
y.

 Supplyi
sinel
ast
icorl
essel
ast
icwhenagr
eatchangei
npr
icei
nducesonl
yasl
i
ght
changei
nsupply.

 suppl
yisper
fect
lyi
nel
ast
ic(
zer
o)i
twi
l
lber
epr
esent
edbyav
ert
icall
ine

suppl
yisper
fect
lyel
ast
ic(
Inf
ini
ty)i
twi
l
lber
epr
esent
edbyahor
izont
alst
rai
ghtl
i
ne

 Ifpri
ceincreasetop1buyers
purchaselessandsuppli
er
supplymor ewill
leadt
o
mar ketsur
plus,

 Ift
hepr i
cedecr easestoP2
buyersdemandt obuymor e
andsuppl i
erspreferto
decreasetheirsupplyleadi
ng
toshortage

 Atpoi
nt‗
E‘mar
ketdemandequal
smar
ketsuppl
y(equi
l
ibr
ium poi
nt)

 Pi
smar
ketequi
l
ibr
ium pr
ice

 Mi
smar
ketequi
l
ibr
ium quant
it
y

 i
fthedemandi
ncr
easesthe
demandcur
vewil
lshi
ftupwar
dto
theD1Thenequi l
ibr
ium pri
ce
i
ncreasesandtheequil
ibr
ium
quanti
tyi
ncrease

 decr ndemandD2r
easei educe
boththeequi
l
ibr
ium pr
iceand
quantit
y

ByTami
ratTi
l
ahun(
JimmaUni
ver
sit
y)
 Economi
csShor
tnot
e

 t
hesupplyincreasestoS 1reducest
he
equi
l
ibr
ium priceandincr
easesthe
equili
br i
um quant
it
y

 Ifsuppl
ydecreasetoS2itleadsto
incr
easeequil
i
brium pri
ceanddecrease
equi
li
brium quant
it
y

N.
B
 Whenbothdemandandsuppl yi
ncrease,
thequant
it
yoftheproductwi
l
lincr
ease
def
ini
tel
y.Buti
tisnotcer
tai
nwhetherthepri
cewil
lri
seorf
all
.

 I
fanincreaseindemandi
smor
ethanani
ncr
easei
nsuppl
y,t
hent
hepr
icegoesupand
quant
it
ydecr ease

 i
fanincreaseinsuppl
yismor
ethanani
ncr
easei
ndemand,
thepr
icef
all
sbutt
he
quant
it
yincreases.

 Ift
heincreaseindemandandsupplyi
ssame,t
henthepr
icer
emainst
hesame.Butt
he
changeinpricewil
ldependupont
herel
ati
vef
alli
ndemandandsuppl
y.

 Whent
hef
all
indemandi
smor
ethant
hef
all
insuppl
y,t
hepr
icewi
l
ldecr
ease.

 Ontheot
herhand,
whent
hef
all
insuppl
yismor
ethant
hef
all
indemand,
thepr
icewi
l
l
r
ise.

 Ifbot
hdemandandsuppl
ydecli
nei
nthesamerat
io,
ther
eisnochangei
nthe
equil
i
bri
um pr
ice,
butt
hequant
it
ydecr
eases.

ByTami
ratTi
l
ahun(
JimmaUni
ver
sit
y)