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 price mechanism: effect of a rise in demand

the goods market

Goods Market

Dg shortage(Dg > Sg)

Pg Sg

Dguntil Dg = Sg

The price mechanism:the effect of a rise in demand

The price mechanism:the effect of a rise in demand

Demand and supply analysisDemand and supply analysis

The price mechanism: effect of a rise in demand

factor markets

The price mechanism: effect of a rise in demand

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 price mechanism:the effect of a rise in demand

The price mechanism:the effect of a rise in demand

Demand and supply analysisDemand and supply analysis

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

Quantity (tonnes: 000s)

Pri

ce (

pen

ce p

er k

g)

Price(pence per kg)

20

40

Market demand(tonnes 000s)

700

500

A

B

Point

A

B

Demand

Market demand for potatoes (monthly)Market 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

40

60

Market demand(tonnes 000s)

700

500

350

A

B

C

Point

A

B

C

Demand

Market demand for potatoes (monthly)Market 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

40

60

80

Market demand(tonnes 000s)

700

500

350

200

A

B

C

D

Point

A

B

C

D

Demand

Market demand for potatoes (monthly)Market 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

40

60

80

100

Market demand(tonnes 000s)

700

500

350

200100

A

B

C

D

E

Point

A

B

C

D

E

Demand

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

Demand and supply analysisDemand and supply analysis

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

Demand and supply analysisDemand and supply analysis

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)

Quantity (tonnes: 000s)

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)

Quantity (tonnes: 000s)

Supply

a

b

P

20 40

Q

100200

ab

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)

Quantity (tonnes: 000s)

Supply

a

b

c

P

20 40 60

Q

100200350

abc

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)

Quantity (tonnes: 000s)

Supply

a

b

c

d P

20 40 60 80

Q

100200350530

abcd

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)

Quantity (tonnes: 000s)

Supply

a

b

c

d

e

P

20 40 60 80100

Q

100200350530700

abcde

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

Demand and supply analysisDemand and supply analysis

Shifts in thesupply curveShifts in thesupply curve

P

QO

S0

Shifts in the supply curveShifts in the supply curve

P

QO

S0

Increase

S1

Shifts in the supply curveShifts in the supply curve

P

QO

S2 S0 S1

IncreaseDecrease

Shifts in the supply curveShifts in the supply curve

Demand and supply analysisDemand and supply analysis

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)

The determination of market equilibrium (potatoes: monthly)

Quantity (tonnes: 000s)

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

Quantity (tonnes: 000s)

E

C

B

Aa

b

c

e

Supply

Demand

Pri

ce (

pen

ce p

er k

g)

D dSURPLUS

(330 000)

The determination of market equilibrium (potatoes: monthly)

The determination of market equilibrium (potatoes: monthly)

0

20

40

60

80

100

0 100 200 300 400 500 600 700 800

Quantity (tonnes: 000s)

E

D

C

B

Aa

b

c

d

e

Supply

Demand

Pri

ce (

pen

ce p

er k

g)

SHORTAGE

(300 000)

The determination of market equilibrium (potatoes: monthly)

The determination of market equilibrium (potatoes: monthly)

0

20

40

60

80

100

0 100 200 300 400 500 600 700 800

D d

Qe

Quantity (tonnes: 000s)

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)

Demand and supply analysisDemand and supply analysis

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

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

P

QO

Pe1

Qe1

S

D1

D2

g

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

P

QO

Pe1

Qe1

S

g h

D1

D2

Pe2

Qe2

i

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

P

QO

Pe1

Qe1

S

D1D2

g

A decrease in demand

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

P

QO

Pe1

Qe1

S

D1D2

g

Pe2

Qe2

n

m

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

Demand and supply analysisDemand and supply analysis

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

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

P

QO

Pe1

Qe1

D

S1

S2

g

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

P

QO

Pe1

Pe3

Qe3Qe1

D

S1

S2

j g

k

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

P

QO

Pe1

Qe1

D

S1

g

An increase in supply

S2

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

P

QO

Pe1

Qe1

D

S1

g

S2

p

Pe2

Qe2

q

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