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    Demand and Supply

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    tagashii
    Okay, here are the calculations: 1. Original equilibrium: D=100-0.25P S=40+0.75P Equating D=S: 100-0.25P = 40+0.75P 0.25P - 0.75P = 60 -0.5P = 60 P = 120 Qty at P=120 is 100-0.25(120)=80 2. If govt imposes max price of 48: D at P=48 is 100-0.25(48)=80 S at P=48 is 40+0.75(48)=64 Shortage = S - D = 64 - 80

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    Demand and Supply

    Uploaded by

    tagashii
    148 views15 pages
    Okay, here are the calculations: 1. Original equilibrium: D=100-0.25P S=40+0.75P Equating D=S: 100-0.25P = 40+0.75P 0.25P - 0.75P = 60 -0.5P = 60 P = 120 Qty at P=120 is 100-0.25(120)=80 2. If govt imposes max price of 48: D at P=48 is 100-0.25(48)=80 S at P=48 is 40+0.75(48)=64 Shortage = S - D = 64 - 80

    Original Description:

    BUSINESS ECONOMICS

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    Okay, here are the calculations: 1. Original equilibrium: D=100-0.25P S=40+0.75P Equating D=S: 100-0.25P = 40+0.75P 0.25P - 0.75P = 60 -0.5P = 60 P = 120 Qty at P=120 is 100-0.25(120)=80 2. If govt imposes max price of 48: D at P=48 is 100-0.25(48)=80 S at P=48 is 40+0.75(48)=64 Shortage = S - D = 64 - 80

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    148 views15 pages

    Demand and Supply

    Uploaded by

    tagashii
    Okay, here are the calculations: 1. Original equilibrium: D=100-0.25P S=40+0.75P Equating D=S: 100-0.25P = 40+0.75P 0.25P - 0.75P = 60 -0.5P = 60 P = 120 Qty at P=120 is 100-0.25(120)=80 2. If govt imposes max price of 48: D at P=48 is 100-0.25(48)=80 S at P=48 is 40+0.75(48)=64 Shortage = S - D = 64 - 80

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 15

    Lecture 2&3: Demand

    &Supply
    Defining Demand

    • Demand refers to the quantity of a good


    which consumers are willing and able to
    buy over a given period of time at a
    particular place and price.

    • The law of demand states that consumers


    will buy more of a good as price falls and
    vice- versa
    The Demand Curve
    • Price • Demand curve slopes
    downwards due to :
    • Diminishing marginal
    utility
    • Law of demand

    • quantity
    Movements in Demand
    • There is a movement
    along the demand
    curve only and only
    contraction if the price of the
    good concerned
    changes
    expansion
    Shifts in Demand

    Rightward shift Leftward Shift


    Factors causing shifts in demand
    Rightward Shift Leftward Shift
    Rise in income Fall in income
    Rise in population Fall in population
    Rise in price of a substitute good Fall in price of a substitute good

    Fall in price of a complementary Rise in price of a complementary


    good good
    Changes in taste in favour of the Changes in taste against the good
    good

    Advertising in favour of the good Advertising against the good or in


    favour of rival goods
    Climatic conditions* Climatic conditions*
    Defining Supply

    • Supply refers to the quantity of a good


    which producers are willing and able to
    offer for sale over a given period of time
    at a particular price and place.

    • The law of supply states that producers


    will sell more as price rises and vice-versa.
    The Supply Curve
    Price
    • The curve is upward
    sloping, ie more is
    supplied at a higher
    price.

    Quantity
    Shifts in Supply Curve
    Rightward shift Leftward shift

    price
    price

    quantity quantity
    Factors causing Shifts in Supply
    Curve
    Rightward Shift Leftward Shift
    An improvement in A worsening in technology
    technology
    A subsidy granted by govt The removal of a subsidy by
    govt
    A fall in cost of production A rise in cost of production
    Equilibrium
    Price DD SS
    price
    dd ss 0.00 200 0
    0.10 160 0
    Equil 0.20 120 40
    price
    0.30 80 80
    0.40 40 120
    Equil qty 0.50 0 160
    qty
    Regulatory Pricing
    p • Minimum price or
    dd ss price floor is set
    Minimum
    pricing above the equilibrium
    price. This policy
    Equil
    price creates a surplus in
    the market- ss
    exceeds dd. Govt
    intervenes and buys
    q
    the surplus and
    warehouses it.
    • Maximum price or
    p
    dd ss
    price ceiling is set
    below equilibrium
    price. This policy
    Equil creates shortage in
    price
    the market. The govt
    Maximum intervenes and
    price
    release past stocks or
    use rationing to avoid
    q
    black mkting.
    Exercise
    • Plot dd and ss and find equil.
    Price and qty.
    Price DD SS • If dd increases by 120
    throughout show the changes to
    1 220 10 first part.
    • Govt imposes a quota of 50 units
    2 160 30 what will be the effect on equil.
    3 120 50 Price.
    • Show how the following affect
    4 80 80 equil. Price and qty
    – A tax imposed on the good
    5 50 110
    – A rise in price of a
    6 30 150 complementary good
    – A successful advertising
    7 20 200 campaign
    – A fall in cost of production
    D =100-0.25 P
    S= 40 +0.75 P

    • Calculate:
    • Equil P and Qty
    • If govt imposes a max price of 48, calculate the resulting
    shortage
    • Calculate the amount govt receives by imposing such a
    price
    • Calculate equil P and Qty if SS changes to S=60 +0.75P

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