Demand and Supply

1. Demand. The law of demand. The demand

curve.
2. Supply. The law of supply. The supply curve.
3. Market equilibrium. Equilibrium price and
equilibrium quantity.
4. Shifts in demand and supply.
Demand is the quantity of a particular good
that consumers are willing and able to
purchase during a specified period of time
under a given set of conditions

The law of demand: As price of a good

rises, quantity demanded decreases, and as
price falls, quantity demanded increases

Demand curve is a graph showing how

much of a given good consumers would be
willing and able to buy at different prices
Proofs of the law of demand:

• Income effect

• Substitution effect

 Do you know any situations when the law of

demand does not work?
Supply is the quantity of a particular good
that sellers are willing and able to bring to
the market during a certain period of time
under a given set of conditions

The law of supply: As price of a good

rises, quantity supplied increases, and as
price falls, quantity supplied decreases

 Proof of the law of supply - ?

1. Inelastic demand implies that:
a) A 1 per cent increase in price of a good causes more
than 1 per cent decrease in demand for the good
b) A 1 per cent increase in price of a good causes less
than 1 per cent decrease in demand for the good
c) Any change in price does not affect total revenue of
seller
d) A 1 per cent change of the price does not affect the
demand
 
2. Suppose 200 videotapes are rented when the price is EUR
4. If the price drops by EUR 0.80, the number of videotapes
rented increases to 220. Which of the following statements
about the price elasticity of demand is true?
a) The elasticity of demand is equal to 5;
b) Demand is elastic;
c) Demand is inelastic;
d) Demand is unit-elastic.