Demand Supply and Market Equilibrium
Introduction –Demand supply and market equilibrium • It is the belief of many that the principles of demand and supply is very important to microeconomics.
• However, the concepts that underline these principles are often confused. This presentation will outline the core principles behind these concepts.
Demand
•
Demand can be defined as : the want or desire to possess a good or service with the necessary goods, services, or financial instruments necessary to make a legal transaction for those goods or services.
•
However it is important to distinguish between demand and quantity demanded. •
Quantity demanded can be defined as the quantity of goods which consumers are willing and able to buy during a period giving the price and available income.
•
Thus demand is the desire to want something. Quantity demanded is the desire to want plus the ability to pay.
The Demand Curve
• The Demand curve is downward sloping and its slope can be characterized as being elastic or inelastic. (to be discussed later in the unit).
• The demand curve can be defined as the graph depicting the relationship between the price of a certain commodity, and the amount of it that consumers are willing and able to purchase at that given price.
• Figure 1 depicts a typical demand curve.
The Demand Curve
• Figure 1
The Demand Curve
The demand curve, represents the amount of a good that buyers are willing and able to purchase at various prices, assuming all other non-price factors remain the same.
The demand curve is almost always represented as downwards-sloping, meaning that as price decreases, consumers will buy more of the good. This is shown by the line D1 in Figure 1.
Demand shift Vs. Movement
• There are various factors that results in a shift or a movement along the demand curve.
• Factors that cause shift in demand
– Change in Income
– Taste
– Price of substitute
– Price of compliments
That is any other factor than the price of the good itself will result in a shift in the
• However, the concepts that underline these principles are often confused. This presentation will outline the core principles behind these concepts.
Demand
•
Demand can be defined as : the want or desire to possess a good or service with the necessary goods, services, or financial instruments necessary to make a legal transaction for those goods or services.
•
However it is important to distinguish between demand and quantity demanded. •
Quantity demanded can be defined as the quantity of goods which consumers are willing and able to buy during a period giving the price and available income.
•
Thus demand is the desire to want something. Quantity demanded is the desire to want plus the ability to pay.
The Demand Curve
• The Demand curve is downward sloping and its slope can be characterized as being elastic or inelastic. (to be discussed later in the unit).
• The demand curve can be defined as the graph depicting the relationship between the price of a certain commodity, and the amount of it that consumers are willing and able to purchase at that given price.
• Figure 1 depicts a typical demand curve.
The Demand Curve
• Figure 1
The Demand Curve
The demand curve, represents the amount of a good that buyers are willing and able to purchase at various prices, assuming all other non-price factors remain the same.
The demand curve is almost always represented as downwards-sloping, meaning that as price decreases, consumers will buy more of the good. This is shown by the line D1 in Figure 1.
Demand shift Vs. Movement
• There are various factors that results in a shift or a movement along the demand curve.
• Factors that cause shift in demand
– Change in Income
– Taste
– Price of substitute
– Price of compliments
That is any other factor than the price of the good itself will result in a shift in the