Post on 15-Nov-2014
description
By Flavio Alves 13I
Supply and Demand
When businesses are considering the price of their products and services, they will sometimes go and look at Supply and Demand.
Supply looks at the price setting point, from the view of the business.
Demand looks at the same process, but from the consumer/customer’s views.
Supply and Demand
What is it?Definition – Supply is the amount of goods
that producers are willing to supply or sell at a given price.
Supply
What is it?Definition – Demand is an amount that an
individual or individuals are willing to buy at a given price.
Demand
What is it?Equilibrium is when the Demand and Supply
are equal.
Equilibrium
0 10 20 30 40 50 60 70 800
0.5
1
1.5
2
2.5
3
3.5
4
90
Supply Curve
This is a Supply Curve
Price ($)
Quantity Supplied
Supply Curve
0 10 20 30 40 50 60 70 800
0.51
1.52
2.53
3.54
90
Now, by what you see here, the quantity that is being supplied is raising, therefore meaning that the price is also raising, because the demand is increasing. Price
($)
Quantity Supplied
Supply Curve (Example)
0 10 20 30 40 50 60 70 800
0.51
1.52
2.53
3.54
90
Price ($)
Quantity Supplied
Here’s an example. A farmer has gone to the market to sell the apples he picked from his apple tree.
Because demand for
the farmer’s apples
were increasing,
The farmer decided
to increase the price
for his apples, which
means that he will
gain more profit.
Supply Curve (Example)
0 10 20 30 40 50 60 70 800
0.51
1.52
2.53
3.54
90
Quantity Supplied
Price ($)
-----------------
Now, for every 9 apples that were sold approximately, the prices of the apples were 50 cents. Because the farmer realised how the demand was increasing, he decided to raise the price for the apples. Below are the results for how many apples were supplied at what prices.
It shows the demand
increasing, which is
what made the farmer
increase the apple price,
because he wanted to
make the most profit
possible.
Demand Curve
0 10 20 30 40 50 60 70 800
0.5
1
1.5
2
2.5
3
3.5
4
90
This is a Demand Curve
Price ($)
Quantity Supplied
Demand Curve
0 10 20 30 40 50 60 70 800
0.51
1.52
2.53
3.54
90
Price ($)
Quantity Demanded
Now, by what you see here, the quantity that is being demanded is increasing because the price is decreasing. This is because if the price is lower, then more people will want to purchase the product.
Demand Curve (Example)
0 10 20 30 40 50 60 70 800
0.51
1.52
2.53
3.54
90
Price ($)
Quantity Demanded
Here’s an example. In a primary school, they are selling Mars Bars at the canteen for $4. Because the price is so high, only approximately 4 people would buy them. Whereas if the price was lowered to 50 cents per Mars Bar, approximately 90 people would buy them.
Because the demand
for Mars Bars were low
at the price of $4, then
the school had no
choice but to lower the
price of them, which
would then increase
the demand.
Equilibrium
0 10 20 30 40 50 60 70 800
0.51
1.52
2.53
3.54
90
Price ($)
Quantity Demanded
Equilibrium is when both Supply and Demand curves intersect. The equilibrium is in the middle, which is the amount that the sellers and/or buyers are happy to pay/sell for the selected products.
Therefore, in this case
the amount demanded
at the price of approx.
$2.20, would be
approximately 48,
because this is the
equilibrium point.
Equilibrium
Lack of Raw MaterialsInput PriceCommunicationSub-ProductsTaxes and SubsidiesSeasonality of Material
Factors that affect Supply
Seasonality of ProductsDisposable IncomeState of EconomyCompetitorsDemographicPriceComplimentary Product
Factors that affect Demand
How the curves show a change in Demand
0 250 500 750 10000
0.5
1Price ($)
Quantity Demanded
Let’s say that Mars Bars are being supplied again.
They are going for 50p at a canteen in a school again.
Now, because half of the school is on a trip,
only approximately 500 Mars Bars were
sold, on the Monday.
D1
How the curves show a change in Demand
0 250 500 750 1000
0
0.5
1
Price ($)
Quantity Demande
d
On Tuesday, the other half
of the school are back at school
again. Because everyone is back, the
school were able to sell 1000
Mars bars this time, at the
same price.
D1D2
How the curves show a change in Demand
0 250 500 750 1000
0
0.5
1
Quantity Demande
d
Now, the change could also be decreased, if for example 75% of
the school is out on a trip, and only the badly-behaved students stayed. Because there were not
so many students, then only 250
Mars bars were sold.
D1D2
Price ($)
D3
How the curves show a change in Supply
0 3 5 7 100
10
20
30
40Price ($)
Quantity Supplied
Let’s say an owner of a pit has a budget of $100 per week for
labour. The wage of his workers is $20 a week. Then he will employ 5
workers.
S1
How the curves show a change in Supply
0 3 5 7 100
10
20
30
40Price ($)
Quantity Supplied
Now, imagine that the wage of his workers
dropped down to $10 a week. This means
that the owner can be supplied with 10
workers, which means he will be able to supply much faster
to the market.
S1S2
0 3 5 7 100
10
20
30
40Price ($)
Quantity Supplied
S1S2
S3
But the quantity supplied could also
be decreased. If the wages per week
went up to $30, then the owner could own
be supplied with 3 workers, meaning he
can’t supply to the market as fast.
How the curves show a change in Supply