basic elements of demand & supply
TRANSCRIPT
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BASICELEMENTS
OF DEMAND
AND SUPPLY
Sir Rizwan ul Hassan
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Law of Demand
If price of a commodity falls, its
quantity demanded increases
and if price rises then quantitydemanded decreases while
other conditions remain same.
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Demand Curve
DEMAND SCHEDULEPairs Price Quantity
Demanded
A 5 200B 10 150C 15 120D 20 100E 25 90
0
5
10
1520
25
30
0 100 200 300
Price
Quantity Demanded
D
D
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Why does law of demand operate?
Income Effect
Substitution Effect
Mathematical expression of law ofdemand
Qd = a ---bP where a is x intercept , b isslope
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Individual & Market
Demand
Quantity demanded of a single
person or a household is called
individual demand. The sum of quantities demanded
of all individual demands in a
particular area is called market
demand.
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Factors affecting
demand
Average income
Population
Price of related goods
Tastes or fashionsSpecial influences
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Shift in Demand
When quantity demanded changes due to
change in any factor affecting demand while
prices remain same is called shift in demand.
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Demand & Quantity Demanded
If demand curve
shifts due to change
in income or fashionor speculation it is
called change in
demand.
If there is changedue to price it is
called change in
quantity demanded
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Meaning of supply
It is the quantity of a commodity which the
producers or sellers are willing to sell at a
given price.
Law of supply The quantity supplied of a commodity
increases when price rises and quantitysupplied decreases when price falls while
other conditions remain same.
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Supply Curve
0
10
20
30
40
50
60
0 500 1000 1500 2000
Price
Quantity Supplied (QS)
S
S
A
B
C
D
E
SUPPLY
SCHEDULEPairs Price QSA 10 0B 20 700C 30 1200D 40 1600E 50 1800
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F Aff i
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Factors Affecting
Supply
Technology
Input prices
Prices of related goods
Government policy
Special influences
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Shift in Supply
When quantity supplied changes due to change in any factor affecting
supply while price remains same it is called shift in supply or change insupply
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Supply & Quantity Supplied
If supply curve shifts forward or backward due
to change in technology or input costs or over
production or it is called change in supply.
If there is movement along the supply curvedue to change in price it is called change in
quantity supplied.
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Market Equilibrium
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Mathematical Equilibrium
If we equalize quantity demanded and
supplied by equation we can determine and
predict any price or quantity demanded or
suppliedQs =Qd or c+dP =abP
C
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Change in Market
Equilibrium
Demand
increases,
price and
quantity
increases
Demand
decreases,
price and
quantity
decreases
Supply
increases,
price
decreases
and quantity
increases
Supply
decreases,
price
increases and
quantity
decreases