MICROECONOMICS FOR BUSINESS

BBA SECOND SEMESTER

Dr. Tasneem Akhter

Lecture # 2
Market Forces Demand & Supply
 What is Market?

• Is a group of buyers and sells of a particular product.

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Economic Actions
Payments
Land Rent
Labor Wage
• Production Factors
Capital Interest
The action of making or
manufacturing something Entrepreneurship Profit
from components.
• Distribution
• Consumption
• Exchange

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1. Buy/Rent the factors of 1. Own the factors of Production
Production from households 2. Sell/rent it to the firms
2. Use them in production Factor Market La
ur nd
re ne ,L
ab
p
tre or,
En Ca
& Re pit
al s,
api t age , nt al &
C , W st Int , W En
or, e a tre
, La b Rent tere fit Pr res ges pr
d In Pro ofi t, , en
Lan t eu
r

Firms Households/
Individuals
Sell goods
and es m
en
t Consumes
goods and
y
services vic
r Pa Pa Go
Se ym
en od
s&
services
t & s
d
oo Se
G rv
ice
s

Product Market

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1. Buy/Rent the factors of 1. Own the factors of Production
Production from households 2. Sell/rent it to the firms
2. Use them in production Factor Market
Input Market
ly Su
pp pp
Su De
ly
nd m
ema an
D d

Firms Households/
Individuals
Sell goods
and an
d Consumes
goods and
m
services De De
pl y p
m
an
Su
services
d Su
pp
ly

Product Market
Output Market

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Concept of Demand
Basis For Difference Desire Demand

Introduction Wish or feeling to own or Feeling to own something

get something and willingness and
ability to pay
Nature Fictional Realistic

Ability To Pay Not necessary Necessary

Willingness Not necessary Necessary

Limit No Yes

Resources Not required Required

Example Poor person's wish to Rich person's wish to

have a car have a car

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Demand

• Quantity Demanded the amount of goods/ Services

people
Wish to buy either
– Want to buy having resources or not
Willing to buy
– Able to buy
Can buy,
Having resources for it

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Law of Demand

• Keeping all the other things constant, change in price

(P) of a good or service, change the quantity
demanded (Qd) of it.

• When P Qd

• When P Qd

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Demand Schedule

Price Quantity Demanded

0.00 14
0.50 12
1.00 10
1.50 8
2.00 6
2.50 4
3.00 2
3.50 0
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 Demand Curve
4.00
3.50
3.00
2.50
Price

2.00 Quantity Demanded

1.50
1.00
0.50
0.00
0 2 4 6 8 10 12 14 16
Quantity Demanded

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Demand Law Explanation
• This means that demand curves slope downward.
• The law of demand states that there is a negative, or
inverse, relationship between price and the quantity
of a good demanded and its price

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Ceteris Paribus
• Keeping all the other things constant.
• Other things remain same.
• In the situation of rest is constant only price and
quantity vary.

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Movement Along the Curve

Contraction
When there is a decrease in
Quantity Demanded with an
increase in Price

Expansion
When there is an increase in
Quantity Demanded with a
decrease in Price

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 Market Demand= Sum of all Individual’s Demand
Ahmad's Quantity Irha's Quantity Market
Price Demanded Demanded Demand

0.00 14 10 24

0.50 12 9 21

1.00 10 8 18

1.50 8 7 15

2.00 6 6 12

2.50 4 5 9

3.00 2 4 6

3.50 0 3 3
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 Market Demand
4.00
3.50
3.00
2.50 Ahmad's Demand
Price

2.00 Irha's Demand

1.50 Market Demand
1.00
0.50
0.00
0 5 10 15 20 25 30
Quantity Demanded

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Shift in Demand Curve
• Change in quantity demanded because of non price
parameters
– Number of buyer
Normal Good
– Income Inferior Good
– Price of related goods Superior Good
– Taste
Substitute Good
– Expectations
Complementary Good

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