Transcript Demand and Supply Analysis

Demand
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Demand and Supply Game
Place a value of
each token
Black = 50 cent
Red = 20 cent
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Price rises when quantity supplied
is scarce and demand increases
Price decreases when quantity
supplied increases and as a result
demand increases
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Demand

The amount consumers desire to purchase at
various prices at any given time

Demand does not necessarily mean a
consumer WILL buy, but refers to a good or
service they WOULD LIKE to buy
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Effective Demand
•
Consumers must be willing to buy AND be
capable of paying the price set by the
supplier
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Law of Demand
If Price rises – Quantity demanded falls
P
Q
If Price falls – Quantity demanded rises
P
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Q
Individual Demand

Individual Demand Schedule
Lists the different quantities of a good that an
individual consumer is prepared to buy at each
price
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Market Demand

Market Demand Schedule
Lists the different quantities of a good that all
consumers in the market are prepared to buy
at each price. It is derived by adding together
all the individual demand schedules for the
good
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Demand Schedule
(Demand for coffee monthly)
(1)
Price
(cent per g)
(2)
Chris’s
demand
(3)
David’s
demand
(4)
Total market
demand
(g)
(g)
(kg’s: 000s)
A
20
28
16
700
B
40
15
11
500
C
60
5
9
350
D
80
1
7
200
E
100
0
6
100
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Demand Curve

At higher prices, consumers are generally
willing to purchase less than at lower prices

Demand curve is said to have a negative
slope - downward sloping from left to right
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Point
Price per g
A
20 cent
Market Demand
100
700 kilogrammes
Price (cent per g)
80
60
40
Demand
A
20
0
0
100
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200
300
400
500
Quantity (kilogrammes: 000s)
600
700
800
100
Point
Price per g
Market Demand
A
20 cent
700 kilogrammes
B
40 cent
500 kilogrammes
Price (cent per g)
80
60
B
40
A
20
0
0
100
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200
300
400
500
Quantity (kilogrammes: 000s)
600
700
800
100
Point
Price per g
Market Demand
A
20 cent
700 kilogrammes
B
40 cent
500 kilogrammes
C
60 cent
350 kilogrammes
Price (cent per g)
80
C
60
B
40
A
20
0
0
100
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200
300
400
500
Quantity (kilogrammes: 000s)
600
700
800
100
D
Price (cent per g)
80
60
Point
Price per g
Market Demand
A
20 cent
700 kilogrammes
B
40 cent
500 kilogrammes
C
60 cent
350 kilogrammes
D
80 cent
200 kilogrammes
C
B
40
A
20
0
0
100
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200
300
400
500
Quantity (kilogrammes: 000s)
600
700
800
E
100
D
Price (cent per g)
80
60
Point
Price per g
Market Demand
A
20 cent
700 kilogrammes
B
40 cent
500 kilogrammes
C
60 cent
350 kilogrammes
D
80 cent
200 kilogrammes
E
100 cent
100 kilogrammes
C
B
40
A
20
0
0
100
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200
300
400
500
Quantity (kilogrammes: 000s)
600
700
800
An Increase in Demand
Price
P
D1
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Q1
Q2
Quantity
D2
A Decrease in Demand
Price
P
D2
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Q2
Q1
Quantity
D1
Factors affecting the
demand for a good
The Demand Function
Dx = f ( Px, Pog, Y, T, E, G, U)
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The Demand Function
Dx = f ( Px, Pog, Y, T, E, G, U)
Px = Goods which obey and do not obey the
Law of Demand
 Pog = Price of Complimentary Goods and
Cost of Substitute Goods
 Y = Income of consumer
 T = Consumer tastes and preferences
 E = Consumers expectations regarding
future prices
 G = Government regulations
 U = Unplanned factors

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Demand for a good depends on its own price
If price rises quantity demanded falls
If price falls quantity demanded rises
P2
P1
Q2
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Q1
Quantity Demanded
Demand for a good depends on the price of
other goods
• Complimentary Goods
Goods which are used jointly. The use of one involves the
use of the other - E.g. bread and butter, cars and petrol
• Substitute Goods
Goods which satisfy the same needs and thus can be
considered as alternatives to each other – E.g. Coke and
Pepsi or Tea and Coffee
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Complimentary Goods
D1
D2
An increase in price of a
complementary good causes the
demand for good X to fall
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D2
D1
An fall in price of a complementary
good causes the demand for good X to
rise
Substitute Goods
(The Substitute Effect)
D2
D1
An increase in price of a substitute
good causes the demand for good X to
rise
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D1
D2
An fall in price of a substitute good
causes the demand for good X to fall
Demand for a good depends on level of income
(The Income Effect)
• Normal Goods
A normal good is a good with a positive income effect. A
rise in income causes more of it to be demanded, while a
fall in income causes less of it to be demanded
• Inferior Goods
An inferior good is a good with a negative income effect.
A rise in income causes less of it to be demanded, while a
fall in income causes more of it to be demanded
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Normal Goods
D2
D1
A rise in income causes the demand for
a normal good to increase from D1 to
D2
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D1
D2
An fall in income causes the demand
for a normal good to fall from D1 to
D2
Inferior Goods
D1
D2
An increase in income causes the
demand for an inferior good to fall
from D1 to D2
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D2
D1
A decrease in income causes the
demand for an inferior good to rise
from D1 to D2
Demand depends on Consumer Tastes

If the movement in taste or preferences is in
favour of the good it causes an increase in demand
which shifts the demand curve to the right

If the movement in taste or preferences is against
the good it causes a fall in demand which shifts
the demand curve to the left
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Movement in Taste
D2
D1
A movement in taste in favour of a good
causes demand to increase
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D1
D2
A movement in taste against a good
causes demand to fall
Demand for a good depends on the
expectations of consumers

Demand for a good will shift to the right if
consumers expect:
1.
2.
3.

The price of good X to be higher in the future e.g. property
A scarcity of good X in the future e.g. oil
Their incomes to be higher in the future e.g. promotion
Demand for a good will shift to the left if
consumers expect:
1.
2.
3.
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The price of good X to be lower in the future
A plentiful supply of good X in the future
Their incomes will be lower in the future
Consumer Expectations
D2
D1
Demand for Good X will rise if
consumers expect higher future prices,
scarcity or higher future incomes
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D1
D2
Demand for Good X will fall if
consumers expect lower future prices,
abundance or lower future incomes
Demand for a good depends on government
regulations

If the government implement a programme which
reduces consumption of a particular product than
demand for this good will be affected
 E.g. The smoking ban / educational campaign
to reduce alcohol consumption.
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Government Regulations
Example:
The Smoking Ban
D1
D2
If the government implement a
policy to restrict consumption
demand for Good X will fall
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Demand for a good depends on
unplanned factors

If there is a sudden heat wave – an unplanned
factor – this may result in an increase in demand
for sunscreen and a decrease in the demand of
home oil

If flash floods occur across the country – an
unplanned factor – this may result in an increase
in the demand for Wellingtons.
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Unplanned Factors
D2
D1
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Factors such as weather
can effect the demand
for goods – e.g. a sudden
heat wave would
increase the demand for
sunscreen