MICROECONOMICS

DEMAND
AND SUPPLY
Presented by Group 3
 GROUP
Ghulam Fatima Shaikh Fizza Sultan Fiza Rashid
2047329 2047327 2047326

MEMBER
S
Gaurav Alias Ganesh Hamza Shabbir
2047328 2047330
 Contents….
Here we will discuss about;
 What is demand?
• Law of demand.
• Graphically law of demand
• Shift in demand curve
(causes of Shift)
 What is supply?
• Law of supply
• Graphically law of supply.
• Shift in supply curve
(Causes of Shift)
 Demand and supply applications.
What is
Demand?
►D e m a n d is t h e t o t a l q u a n t i t y i n w h i c h t h e
c u s t o m e r is w i l l i n g a n d a b l e t o purchase.
►A d e m a n d f u n c t i o n is b e h a v i o r f u n c t i o n for
c o ns um e rs . Or w e c a n say
► t h e a m o u n t of g o o d s a n d services p e o p l e
are
w i l l i n g a n d a b l e t o p u r c h a s e a t various prices
d u r i n g a s pecific t i m e pe r io d.
► D e r i v e d d e m a n d : These are s o m e t i m e s c a l l e d
i n t e r m e d i a t e goods.
►For e x a m p l e , d e m a n d for steel is i n t e r m e d i a t e
g o o d s a n d is d e r i v e d f r o m d e m a n d for fi n al
g o o d s e.g., a u t o m o b i l e .
 ►I t refers t o h o w m u c h ( q u a n t i t y ) o f a p r o d u c t
o r service is d e s i r e d b y b u ye r s a t a c e r t a i n p e r i o d
of time.
► There is d e m
►h e L a w o f D e m a n d states t h a t o t h e r t h i n g s

Law of b e i n g c o n s t a n t , a n i n cre a se i n t h e p r i c e o f
a g o o d lowers t h e q u a n ti ty d e m a n d e d of

Deman t h a t good, w h i l e a decrease in t h e price of

a good raises t h e q u a n t i t y d e m a n d e d o f

d th at good.
►a n d f o r g o o d o r service if i t gives p l e a s u r e
or m e e t s a need.
►Price a n d q u a n t i t y d e m a n d e d m o v e i n
opposite directions.

Presented by Group 2
 Graphically law
of demand
Tw o t y p e s o f m o v e m e n t o f t h e d e m a n d c u r v e

► 1). I t C a u s e d b y a c h a n g e i n p r i c e
► 2). C a u s e d b y n o n - p r i c e factors.

►1) c h a n g e i n t h e p r o d u c t ' s p r i c e w i l l r e s u l t t o a
M O V E M E N T AL ON G t h e CURVE, r e p r e s e n t i n g a c h a n g e
in quantity demanded.

► C a u s e d b y N o n - P r i c e Factors:
►A n y o t h e r c h a n g e s , o t h e r t h a n t h e p r i c e o f t h e
p r o d u c t , w i l l r e s u l t i n a SHIFT t o t h e D E M A N D
CURVE (a N E W d e m a n d c u r v e w i l l b e f o r m e d )

Presented by Group 2
 Shift in
Demand Curve
►Causes of Shifts (Changes)
in Demand
1.C o n s u m e r tastes/preferences (changes i n a
person’s w i l l i n g n e s s t o pay)
2.C o n s u m e r i n c o m e / w e a l t h (changes i n a
person’s a b i l i t y t o pay)
3.Prices of r e l a t e d g o o d s (c hanges i n t h e
prices of s u b s t i t u t e g o o d s or c o m p l e m e n t a r y
g ood s )
4.C o n s u m e r e x p e c t a t i o n s a b o u t t h e f u t u r e
5.The n u m b e r of buyers

Presented by Group 2
What is
Supply?
►The a m o u n t of g o o d s available for sale a t all
possible prices.
► Q u a n t i t y s u p p l y is t h e a m o u n t of a g o o d
that
sellers are w i l l i n g a n d a b l e t o sell.
►S u p p l y is a f u l l d e s c r i p t i o n of h o w q u a n t i t y
s u p p l i e d of a c o m m o d i t y r e s p o n d t o c h a n g e s i n
its price.
 ►t h e p r i n c i p l e t h a t , o t h e r t h i n g s e q u a l , a n
in cr e a se i n t h e p r i c e o f a p r o d u c t w i l l in cr e a se
t h e q u a n t i t y o f i t s u p p l i e d , a n d con ve rse ly f o r
a p r i c e decrease; d i r e c t l y r e l a t e d .
►p r o d u c e r s o ff e r m o r e o f a g o o d as its p r i c e

Law of increases a n d less as its p r i c e falls.

►Price a n d q u a n t i t y d e m a n d m o v e t s a m e

Supply d i r e c t i o n . There is p o s i t i v e r e l a t i o n
between q u a n t i t y s u p p l i e d a n d price.
►W h e n t h e p r i c e o f g o o d increases t h e
producer will produce more, and
q u a n t i t y s u p p l y w i l l b e increases.

Presented by Group 2
 Graphically law
of Supply
►S u p p l y c u r v e s h o w s t h e r e l a t i o n s h i p
be t we en price and quantity
supplied.
► I t c a n cause b y a n o t h e r f a c t o r
which
w e c a l l e d shift.
►a g r a p h s h o w i n g t h e various
q u a n t i t i e s s u p p l i e d a t various p ri ce s

Presented by Group 2
 Shift in
Supply
► Causes of Shifts (Changes) in
Supply
1. P r o d u c t i v i t y / t e c h n o l o g y (resource savings i n
h o w t h e g o o d is p r o d u c e d )
2. Prices of resources u s e d (resource prices are
d i r e c t l y r e l a t e d t o costs)
3. G o v e r n m e n t pol ici es (c hanges i n taxes or
subsidies)
4. P r o d u c e r e x p e c t a t i o n s a b o u t t h e f u t u r e
5.The n u m b e r of sellers

Presented by Group 2
 Demand and Supply applications

IT IS T HE S IT S IT U AT I O N I N W H I C
QD =
U AT I O N I N W H I C H C ONS UME R AR
H P R IC E QS E
R E AC H T O T HE WIL L ING A N D ABL E
L E VE L I N T O BU Y C O M M O D I T IE
WHIC H S AT T HE P R IC E
Q U A N T IT Y DE IN
M A N D BE C O M E E WHIC H P R ODUC
QUAL T O ER SELL.
Q U A N T IT Y S UP P L IE
D.

Presented by Group 2
Demand and
Supply
applications

Presented by Group 2
 APPLICATIONS
Two important considerations arise in all applications of supply
and demand analysis.
 First, the shapes of the supply and demand curves must be
established within the context of the problem being analyzed.
 Second, the forces leading to shifts in the supply and demand
curves must be determined in the case at hand.
 The effects of the forces shifting the supply and demand on
the equilibrium price and quantity can then be obtained. It is
useful to begin with a some simple applications that follow
directly from supply and demand relationships that have been
developed earlier in this lesson. Then we can proceed to more
complex situations.
 Example
Figure 1 examines the effects on the
price and quantity of fresh milk and TV
sets of an increase in consumers'
incomes. The supply curve of fresh milk
is portrayed as upward sloping to reflect
the effects of diminishing returns. The
supply curve of TV sets is portrayed as
horizontal to reflect the fact that there
are no diminishing returns in that
industry. Fresh milk is produced under
increasing costs and TV sets are
produced under conditions of constant
cost.
 Thank
ForsYour
Attention..
Presented by Group 2