TOPIC 2

DEMAND AND SUPPLY

 CLASSIFICATION OF GOODS &
SERVICES
• Conventional Perspective
• Three types of goods:
1. Free goods
 Have no production cost
 Unlimited amount
i.e air, rain, sunlight

2. Public goods
 Commonly used by community
 Benefits to the society
i.e roads, radio station, public park
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 CLASSIFICATION OF GOODS &
SERVICES..cont..
3. Economic goods
– Require cost of production
– Limited in supply
– Require cost to purchase

Islamic Perspective

Definition: Goods are bounties bestowed by

Allah SWT to mankind.
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 ISLAMIC PERSPECTIVE

• Two concepts related to goods:

1. At Tayyibat
It means good, pure and clean. The consumption is
intimately tied up to Islamic values.

2. Ar Rizq
Godly sustenance; heavenly gifts; the consumption is
tied up to the message that Allah is the true sustainer
and provider
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 CLASSIFICATION OF GOODS

• 1. DHARURIYAH - Necessity goods

• 2. HAJIYAH - Complementary goods;

Improve the quality of life

• 3. KAMALIAH - Luxury goods

Perfection of life

• 4. TARAFIAH - Extravagant and wasteful

Sometimes is unlawful
05/13/2023 5
 DEFINITION OF DEMAND

Demand is defined as the ability and

willingness to buy specific quantities of
goods in a given period of time at a particular
price, ceteris paribus.

Ceteris paribus means all other thing remains the

same
 LAW OF DEMAND

Law of demand states that the higher the price of a good,

the lower is the quantity demanded for that good and the lower

the price, the higher is the quantity demanded, ceteris paribus.

P  Qd  P  Qd 

NEGATIVE RELATIONSHIP
 DEMAND SCHEDULE AND CURVE

Demand Schedule Demand Curve

Price
Price Quantity
5
5 2
4 downward
4 4 sloping demand
curve
3 6 3

2 8 2
1 10 1
Demand
0
Noted here the buyer is aiming to
reduce expenses so the lower the 2 4 6 8 10 Quantity
price the lesser will their expenses be.
Hence buyer prefer to buy goods that
has low price.
 INDIVIDUAL AND MARKET DEMAND

INDIVIDUAL DEMAND
The relationship between the quantity of a good
demanded by a single individual and its price.
 
MARKET DEMAND
The relationship between the total quantity of a
good demanded by adding all the quantities
demanded by all consumers in the market and
its price.
MARKET DEMAND SCHEDULE FOR PEN

Price Quantity Demanded

(RM) Individual 1 Individual 2 Market Demand

5 2 4
4 4 5
3 6 6
2 8 7
1 10 8
10
MARKET DEMAND SCHEDULE FOR PEN
Price

1
Market
Demand curve
0
Quantity
6 9 12 15 18

Just plot the market demand. Do not plot

many individual demand when there are
many demands available
11
 DETERMINANTS OF
DEMAND

Price factor Non-price factors

Factors beside price of the good itself:

Price of the good itself .
This will result in
movement along the
demand curve
1) Consumers’ income
2) Taste and preference
3) Expectation of future price
4) Number of buyers
5) Advertisement
6) Price of related goods in term of
complementary and substitute
goods

This will result in the shifting of

demand curve
 CHANGES IN QUANTITY DEMANDED
VS. CHANGES IN DEMAND
CHANGES IN QUANTITY DEMANDED CHANGES IN DEMAND

Price
Price

D1
Do (Demand) D0

Quantity
Quantity

 Movement along DD curve

 Price changes and other factors are
constant
 Upward movement  when the price of
the good itself increase there will be a
decrease in quantity demanded
 Downward movement  when the price of
the good itself decrease there will be an
increase in quantity demanded
 Shift in the demand curve
 Occurs when there are changes in other
factors but price of the good itself remains
constant/ the same
 If the non-price factor results to increase
in Demand (D0  D1)
 If the non-price factor results to decrease
in Demand (D1  D0)
 CHANGES IN QUANTITY
DEMANDED

Demand for marker Movement upward

If the price of marker
increase from RM2 to RM3,
Price of marker the quantity demand for
marker will decrease from
15 to 10. This will result to
the movement upward along
4 Movement downward the demand curve
Movement upward
3
Movement downward

2 If the price of marker

decrease from RM4 to RM3,
demand the quantity demand for
5 10 15 Quantity of marker will increase from 5
marker to 10. This will result to the
movement downward along
the demand curve
 CHANGES IN DEMAND
Demand of marker Consumers income
If the consumers income increase
Price of marker more goods will be demanded hence
Shifting inward will shift the demand curve outward,
vice versa.

Shifting outward Taste and preference

If the product is not desired anymore
(outdated product) it will be less
D1
demanded by the consumer, hence will
Do shift the demand curve inward, vice
versa.
Quantity of marker
Expectation of future price
If the price of the product is expected
to increase in the future, the consumer
will buy the product now in order to
avoid the future high price, hence will
shift the demand curve outward, vice
versa.
 CHANGES IN DEMAND
Demand of marker Number of buyers
If the number of buyer increase more
Price of marker
product will be demanded hence will
Shifting inward shift the demand curve outward, vice
versa.

Shifting outward Advertisement

If the product is being advertise
D1 regularly it will be well known and more
Do product will be demanded hence will
shift the demand curve outward, vice
Quantity of marker versa.
 CHANGES IN DEMAND
Demand of marker Price of related goods

Price of marker 1) Complementary goods

Shifting inward Complementary means the goods is
being use with another goods. For
example ink and marker are used
Shifting outward together. A marker without ink will be
useless. So the price of ink will be the
D1 price of related good for marker. If the
Do price of ink increase, people will not
purchase marker (because people use
Quantity of marker ink and marker together) hence the
quantity demand for marker will
decrease. This will result to the
shifting inward of the demand curve.
Vice versa
 CHANGES IN DEMAND
Demand of marker Price of related goods
Price of marker
2) Substitute goods
Shifting inward Substitutes means the goods is not
use together. For example pen and
marker are substitute. So the price of
Shifting outward pen will be the price of related good
for marker. If the price of pen
D1 decrease, people will not purchase
Do marker (because marker is expensive
and people will substitute marker with
Quantity of marker the cheaper pen) hence the quantity
demand for marker will decrease. This
will result to the shifting inward of the
demand curve. Vice versa
 DEFINITION OF SUPPLY

Supply is defined as the ability and

willingness to sell or produce a particular
product and services in a given period of
time at a particular price, ceteris paribus.
 LAW OF SUPPLY

Law of supply states that the higher the price of a good, the

greater is the quantity supplied for that good and the lower the

price of a good, the lower is the quantity supplied, ceteris paribus.

P  Qs  P  Qs 

POSITIVE RELATIONSHIP
 SUPPLY SCHEDULE AND CURVE

Supply Schedule Supply Curve

Price Supply curve

Price Quantity 5

5 10 4
Upward
sloping supply
4 8 3 curve
3 6 2
2 4
1
1 2
0
2 4 6 8 10 Quantity
Noted here the seller is aiming for
profit, so the higher the price the
higher the profit. Hence seller prefer to
sell goods that has high price.
 INDIVIDUAL AND MARKET SUPPLY

INDIVIDUAL SUPPLY
The relationship between the quantity of a product supplied
by a single seller and its price.
 

MARKET SUPPLY
The relationship between the total quantity of a product
supplied by adding all the quantities supplied by all
sellers in the market and its price.
MARKET SUPPLY SCHEDULE FOR PEN

Price Quantity Supplied

(RM) Seller A Seller B Market supply

5 10 8
4 8 7
3 6 6
2 4 5
1 2 4
23
 MARKET SUPPLY SCHEDULE FOR PEN

Price Market
supply curve

0
Quantity
6 9 12 15 18

Just plot the market supply. Do not plot

many individual supply when there are
05/13/2023
many supplies available 24
 DETERMINANTS OF
SUPPLY

Price factor Non-price factors

Factors beside price of the

Price of the good itself.
This will result in
movement along the
supply curve
good itself:
1) Cost of production
2) Technological
advancement
3) Expectation of future price
4) Number of seller
5) Government policies
(taxes and subsidies)
6) Price of related goods

This will result in the

shifting of supply curve
 CHANGE IN QUANTITY SUPPLIED VS.
CHANGE IN SUPPLY
CHANGE IN QUANTITY CHANGE IN SUPPLY
SUPPLIED
Price Price

s0
S s1

Quantity
 Movement along supply curve
 Price changes and other factors are
constant/ remains the same
 Upward movement  when the price of
the good itself increase there will be an
increase in quantity supplied
 Downward movement  when the price of
the good itself decrease there will be a
decrease in quantity supplied .
Quantity
 Shift in the supply curve
 Occurs when there are changes in other factors
but the price remains constant
 If the non-price factor results to increase in
supply (S0  S1)
 If the non-price factor results to decrease in
Supply (S1  S0)
 CHANGES IN QUANTITY SUPPLY
Supply for marker Movement upward
If the price of marker
increase from RM2 to RM3,
Price of marker the quantity supply for
marker will increase from 5
supply to 10. This will result to the
movement upward along
4 the supply curve.
Movement downward
3
Movement downward

2 If the price of marker

Movement upward decrease from RM4 to RM3,
5 10 15 Quantity of the quantity supply for
marker marker will decrease from
15 to 10. This will result to
the movement downward
along the supply curve.
 CHANGES IN SUPPLY
Supply of marker Cost of production
If the cost of production increase
Price of marker (wages increase, raw materials price
So increase, tax increase) this means that
Shifting inward
it will be costly for the producer to
s1 produce a product. With the same
amount of capital, the producer cannot
produce as much as they can produce
before. Hence will shift the supply
Shifting outward
curve inward, vice versa.

Technology
Quantity of marker
If there is a betterment in technology
production process will be more
efficient. More product can be produce
hence will shift the supply curve
outward, vice versa.
 CHANGES IN
SUPPLY
Expectation of future price
If the price of the product is expected
Supply of marker to increase in the future due to some
circumstances, seller will not supply
Price of marker the product now and wait to supply the
product in the future when the price
So
Shifting inward increase. Hence will shift the supply
curve inward, vice versa.
S1
Number of seller
If the number of seller increase more
Shifting outward product will be available hence will
shift the supply curve outward, vice
versa.
Quantity of marker
Government policies
If government impose taxes on the
producer, it will increase the cost of
production, hence will shift the supply
curve inward. However is the
government give subsidies to the
producer it will lessen the producer’s
burden hence will shift the supply
curve outward.
 CHANGES IN SUPPLY
Price of related goods
Supply of marker
1) Complementary goods
Price of marker Complementary means the goods
So
Shifting inward is being use with another goods.
For example ink and marker are
S1 used together. A marker without ink
will be useless. So the price of ink
will be the price of related good for
Shifting outward marker. If the price of ink increase,
producer will produce more marker
(because they want to benefit from
Quantity of marker
the high price of ink) hence the
quantity supply for marker will
increase. This will result to the
shifting outward of the demand
curve. Vice versa
 CHANGES IN SUPPLY
Price of related goods
Supply of marker
2) Substitute goods
Price of marker Substitutes means the goods is not
So
Shifting inward use together. For example pen and
marker are substitute. So the price
S1 of pen will be the price of related
good for marker. If the price of pen
increase, producer will not produce
Shifting outward marker (because marker is
cheaper than pen, the produce
wants to benefit from the high price
Quantity of marker of pen) hence the quantity supply
for marker will decrease. This will
result to the shifting inward of the
demand curve. Vice versa