Demand and Supply Analysis

Demand and Supply Analysis

Demand and Supply Analysis

Demand and supply analysisDemand and supply analysis

The price mechanism: effect of a rise in demand

the goods market


the goods market

Goods Market

Dg shortage(Dg > Sg)

Pg Sg

Dguntil Dg = Sg

The price mechanism:the effect of a rise in demand




factor markets


factor markets

Goods Market

Dg shortage(Dg > Sg)

Pg Sg

Dguntil Dg = Sg

Factor Market

Sg Sf

Df until Df = Sf

Df shortage(Df > Sf)

Pf




The demand curveThe demand curve

The demand curve:The demand for potatoes (monthly)

The demand curve:The demand for potatoes (monthly)

0

20

40

60

80

100

0 100 200 300 400 500 600 700 800

Quantity (tonnes: 000s)

Pri

ce (

pen

ce p

er k

g)

Price(pence per kg)

20

Market demand(tonnes 000s)

700A

Point

A

Market demand for potatoes (monthly)Market demand for potatoes (monthly)

Demand

0

20

40

60

80

100

0 100 200 300 400 500 600 700 800


Pri

ce (

pen

ce p

er k

g)

Price(pence per kg)

20

40


700

500

A

B

Point

A

B

Demand


0

20

40

60

80

100

0 100 200 300 400 500 600 700 800


Pri

ce (

pen

ce p

er k

g)

Price(pence per kg)

20

40

60


700

500

350

A

B

C

Point

A

B

C

Demand


0

20

40

60

80

100

0 100 200 300 400 500 600 700 800


Pri

ce (

pen

ce p

er k

g)

Price(pence per kg)

20

40

60

80


700

500

350

200

A

B

C

D

Point

A

B

C

D

Demand


0

20

40

60

80

100

0 100 200 300 400 500 600 700 800


Pri

ce (

pen

ce p

er k

g)

Price(pence per kg)

20

40

60

80

100


700

500

350

200100

A

B

C

D

E

Point

A

B

C

D

E

Demand



Shifts in thedemand curveShifts in the

demand curve

D1

Pric

e

P

O Q0 Q1

Quantity

An increase in demandAn increase in demand

D0

D0

Pric

e

P

O Q0 Q1

Quantity

A decrease in demandA decrease in demand

D1


The supply curveThe supply curve

The supply curve:The supply of potatoes (monthly)

The supply curve:The supply of potatoes (monthly)

0

20

40

60

80

100

0 100 200 300 400 500 600 700 800

Pri

ce (

pen

ce p

er k

g)


Supply

a

P

20

Q

100a

Market supply of potatoes (monthly)Market supply of potatoes (monthly)

0

20

40

60

80

100

0 100 200 300 400 500 600 700 800

Pri

ce (

pen

ce p

er k

g)


Supply

a

b

P

20 40

Q

100200

ab


0

20

40

60

80

100

0 100 200 300 400 500 600 700 800

Pri

ce (

pen

ce p

er k

g)


Supply

a

b

c

P

20 40 60

Q

100200350

abc


0

20

40

60

80

100

0 100 200 300 400 500 600 700 800

Pri

ce (

pen

ce p

er k

g)


Supply

a

b

c

d P

20 40 60 80

Q

100200350530

abcd


0

20

40

60

80

100

0 100 200 300 400 500 600 700 800

Pri

ce (

pen

ce p

er k

g)


Supply

a

b

c

d

e

P

20 40 60 80100

Q

100200350530700

abcde



Shifts in thesupply curveShifts in thesupply curve

P

QO

S0

Shifts in the supply curveShifts in the supply curve

P

QO

S0

Increase

S1


P

QO

S2 S0 S1

IncreaseDecrease



Market equilibriumMarket equilibrium

Equilibrium price and output:The Market Demand and Supply of Potatoes (Monthly)

Equilibrium price and output:The Market Demand and Supply of Potatoes (Monthly)

0

20

40

60

80

100

0 100 200 300 400 500 600 700 800

The determination of market equilibrium (potatoes: monthly)



E

D

C

B

Aa

b

c

d

e

Supply

Demand

Pri

ce (

pen

ce p

er k

g)

0

20

40

60

80

100

0 100 200 300 400 500 600 700 800


E

C

B

Aa

b

c

e

Supply

Demand

Pri

ce (

pen

ce p

er k

g)

D dSURPLUS

(330 000)



0

20

40

60

80

100

0 100 200 300 400 500 600 700 800


E

D

C

B

Aa

b

c

d

e

Supply

Demand

Pri

ce (

pen

ce p

er k

g)

SHORTAGE

(300 000)



0

20

40

60

80

100

0 100 200 300 400 500 600 700 800

D d

Qe


E

B

Aa

b

e

Supply

Demand

Pri

ce (

pen

ce p

er k

g)The determination of market equilibrium

(potatoes: monthly)The determination of market equilibrium

(potatoes: monthly)


Effect of shift in the demand curve

Effect of shift in the demand curve

P

QO

Pe1

Qe1

S

D1

g

Effect of a shift in the demand curveEffect of a shift in the demand curve

An increase in demand

P

QO

Pe1

Qe1

S

D1

g


P

QO

Pe1

Qe1

S

D1

D2

g


P

QO

Pe1

Qe1

S

g h

D1

D2

Pe2

Qe2

i


P

QO

Pe1

Qe1

S

D1D2

g

A decrease in demand


P

QO

Pe1

Qe1

S

D1D2

g

Pe2

Qe2

n

m



Effect of shift in the supply curve

Effect of shift in the supply curve

P

QO

Pe1

Qe1

D

S1

g

Effect of a shift in the supply curveEffect of a shift in the supply curve

A decrease in supply

P

QO

Pe1

Qe1

D

S1

g


P

QO

Pe1

Qe1

D

S1

S2

g


P

QO

Pe1

Pe3

Qe3Qe1

D

S1

S2

j g

k


P

QO

Pe1

Qe1

D

S1

g

An increase in supply

S2


P

QO

Pe1

Qe1

D

S1

g

S2

p

Pe2

Qe2

q


Demand and Supply Analysis

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Transcript of Demand and Supply Analysis