Demand, Supply and Market Equilibrium

Chapter 2
Some Basic Concepts

• Demand- The desire, willingness and ability on the part of people to buy
certain quantities of a product or service at different price level.
1. Individual Demand- Is how many goods a single person is willing to buy at
any price.
2. Market Demand- How many goods all people are willing to buy

• Demand Schedule- Is a table that lists the various quantities of a product

or service that someone is willing to buy over a range of possible prices.
Some Basic Concepts

• Law of Diminishing Marginal Utility- law states that the amount of extra or
marginal utility declines as a person consumes more and more of a good.

• Marginal Utility- The increment to your utility is

called marginal utility.

• Utility- The pleasure, usefulness, or enjoyment we get from using a product.

Some Basic Definitions
Individual Demand:
How many goods a single person is willing to buy at any price.

Market Demand:
How many goods all people are willing to buy.

Demand Schedule:
Is a table that lists the various quantities of a product or service that
someone is willing to buy over a range of possible prices.
Now we Discuss Law of Demand
Law of Demand
Varying Price /Quantity
An economic law stating that as the price of a good or service increases, the quantity demanded
decreases, and vice versa.

 If an object’s price on the market increases, less people will want to buy them because it is too
expensive. If the object’s price on the market decreases, more people will want to buy them because
they are cheaper.

For example: New Car demand is high and price is also high
Demand Schedule For Milk
Price Quantity
Demanded
5$ 10

4$ 20

3$ 30

2$ 50

1$ 80
Now we Discuss Law of Supply
Law of Supply
Varying Price /Quantity
An economic law stating that as the price of a good or service increases, the
quantity supplied increases, and vice versa

If an object’s price on the market increases, the producers would be willing to

supply more of the product. If the object’s price on the market decreases, they are
less willing to supply a lot and the quantity decreases.

Example: If pizza shop is famous supply increase and price also increases
But the Only Problem is:

Market Never Stands Still . . .

5 Shifters / Determinants of Demand
• Taste/Preferences ( Example: Everyday Morning drink Milk )

• Number Of Consumers ( If any new product is launched Can increase Consumers )

• Price of Related Goods ( Almond Milk is relatively expensive then Dairy Milk )

• Income (If income increase the buying power increases and also increase in demand)

• Expectations ( Future predictions increase in Price and Buy more today)

5 Shifters / Determinants of Supply
• Increase in Resources/Inputs/Raw Material ( If Cows increases supply of milk increases)

• Increase in Sellers in Market ( If number of producers increase supply also increase)

• Change in Technology ( Advanced machines can produce more milk and supply increases)

• Taxes & Subsidies ( Government fund to produce more )

• Expectations ( Producer produce products in adavance to supply it later on)

What Happen to the Supply for a product when the price Increase?

Supply Stays the Same but the quantity supply increases.