Monsura Zaman

We will discussThe notions of supply and demand and how

they operate in competitive markets for individual commodities.

Demand curve and supply curve.How the market price is determined.

What is Demand Schedule?The amount of a commodity people buy

depends on its price.Considering other things constant, the higher

the price , the fewer units consumers are willing to buy. The lower its market price, the more units of it are bought.

The relationship between the market price of a good and the quantity demanded of that good , other things held constant, is called demand schedule, or the demand curve.

A hypothetical Demand Schedule for Apples(1)Price (Taka per

Box)

P

(2) Quantity Demanded (millions of boxes per year)

Q

A 5 9B 4 10C 3 12D 2 15E 1 20

The Demand Curve

Quantity of Apples (millions of boxes per year)

x

Law of downward-sloping demandWhen the price of a commodity is raised (and

other things are held constant), buyers tend to buy less of the commodity.

Similarly, when the price is lowered, other thing being constant, quantity demanded increases.

The Market DemandThe market demand curve is found by adding

together the quantities demanded by all individuals at each price.

Px (Tk)

Q d1 Q d2 Q ds

8 0 0 0

4 4 4 8

0 8 8 16

Market Demand Curve

Px (Tk)

4

08 Q ds

Px (Tk)

8

4

04 8 Q d1

Px (Tk)

8

4

04 8 Q d2

Ds = d1 + d2

Forces Behind the Demand CurveAverage levels of incomeSize of the populationPrices and availability of related goodsIndividual and social tastesSpecial influences

Shifts in DemandD'

D'

D

D

y

x0 5 10

P (Price,Taka)

Q (Quantity)

The Supply ScheduleThe supply schedule relates the quantity

supplied of a good to its market price, considering other things constant.

In considering supply, the other things that are held constant includeInput pricesPrices of related goodsGovernment policies

Supply Schedule for ApplesPrice (Taka per box) P

Quantity Supplied (millions of boxes per year)

A 5 18B 4 16C 3 12D 2 7E 1 0

Supply Curve

Pri

ce o

f A

pp

les

(Tk p

er

box)

Quantity of Apples (millions of boxes per year)

S

S

x

y

Forces Behind the Supply CurveProduction costTechnological advancesPrices of the related goodsGovernment policyWeather

Shifts in SupplyS'

S'

S

S

y

x0 5 10

P (Price,Taka)

Q (Quantity)

Equilibrium of Supply and Demand(1) Possible price (Tk per box)

(2) Qty Demanded ( Mn Boxes/year)

(3) Qty Supplied (Mn Boxes/year)

(4)State of Market

(5)Pressure on Price

A 5 9 18 Surplus Downward

B 4 10 16 Surplus Downward

C 3 12 12 Equilibrium

Neutral

D 2 15 7 Shortage Upward

E 1 20 0 Shortage Upward

Market Equilibrium

3

2

5

Equilibrium point

Surplus

Shortage

D

D

S

S

Pri

ce o

f A

pp

les

(Tk p

er

box)

Quantity of Apples (millions of boxes per year)

Q

P

120 20

C