Demand & Supply Basic Study
Demand & Supply Basic Study
Demand & Supply Basic Study
It is the study of particular markets, and segments of the economy. It looks at issues
such as consumer behaviour, individual labour markets, and the theory of firms.
Macroeconomics
pricing of goods and services are guided by the interactions of supply and
What to produce?
How to produce?
For whom to produce?
It aids the resource allocation decision making process. The decision is made at the
Private Economic Agents can allocate resources without any intervention from the
government
Goods and Services are allocated based on price (Higher Price means more supply and
Competition creates choices and opportunities for firms, private individuals and
consumers.
Demand
Demand refers to the willingness and the ability of customers to buy a good or service
related to price
Price∝1DemandPrice∝Demand1
o Price
o Advertising
o Government Policies
o Consumer tastes/preferences
o Consumer Income
o Weather
Price∝Quantity suppliedPrice∝Quantity supplied
o Global factors
o Technology advances
o Business optimism/expectations
The market supply is the aggregate of the supply of all firms in the market
Price Determination
Market Equilibrium
When supply & demand are equal the economy is said to be at equilibrium
At this point, the allocation of goods is at its most efficient because amount of goods
being supplied is the same as amount of goods being demanded & everyone is satisfied
Market Disequilibrium
A change in supply
A change in demand
Consequences of Price Changes
An inward shift of the supply curve will increase prices and vice versa
An inward shift of the demand curve will decrease prices and vice versa
PED=% change in price% /change in quantity demanded
Perfectly Price
Perfectly Price Elastic Unitary Price Elastic
Inelastic
Any changes in the The percentage change in price
Changes in price do
price will lead to is proportional to the
not affect the
quantity demanded percentage change in quantity
quantity demanded
being zero demanded
PES=% change in price% /change in quantity supplied
o Time
o Availability of resources
o Supply available to meet demand