Demand and Supply Analysis
Demand and Supply Analysis
Demand and supply analysisDemand and supply analysis
The price mechanism: effect of a rise in demand
the goods market
The price mechanism: effect of a rise in demand
the goods market
Goods Market
Dg shortage(Dg > Sg)
Pg Sg
Dguntil Dg = Sg
The price mechanism:the effect of a rise in demand
The price mechanism:the effect of a rise in demand
Demand and supply analysisDemand and supply analysis
The price mechanism: effect of a rise in demand
factor markets
The price mechanism: effect of a rise in demand
factor markets
Goods Market
Dg shortage(Dg > Sg)
Pg Sg
Dguntil Dg = Sg
Factor Market
Sg Sf
Df until Df = Sf
Df shortage(Df > Sf)
Pf
The price mechanism:the effect of a rise in demand
The price mechanism:the effect of a rise in demand
Demand and supply analysisDemand and supply analysis
The demand curveThe demand curve
The demand curve:The demand for potatoes (monthly)
The demand curve:The demand for potatoes (monthly)
0
20
40
60
80
100
0 100 200 300 400 500 600 700 800
Quantity (tonnes: 000s)
Pri
ce (
pen
ce p
er k
g)
Price(pence per kg)
20
Market demand(tonnes 000s)
700A
Point
A
Market demand for potatoes (monthly)Market demand for potatoes (monthly)
Demand
0
20
40
60
80
100
0 100 200 300 400 500 600 700 800
Quantity (tonnes: 000s)
Pri
ce (
pen
ce p
er k
g)
Price(pence per kg)
20
40
Market demand(tonnes 000s)
700
500
A
B
Point
A
B
Demand
Market demand for potatoes (monthly)Market demand for potatoes (monthly)
0
20
40
60
80
100
0 100 200 300 400 500 600 700 800
Quantity (tonnes: 000s)
Pri
ce (
pen
ce p
er k
g)
Price(pence per kg)
20
40
60
Market demand(tonnes 000s)
700
500
350
A
B
C
Point
A
B
C
Demand
Market demand for potatoes (monthly)Market demand for potatoes (monthly)
0
20
40
60
80
100
0 100 200 300 400 500 600 700 800
Quantity (tonnes: 000s)
Pri
ce (
pen
ce p
er k
g)
Price(pence per kg)
20
40
60
80
Market demand(tonnes 000s)
700
500
350
200
A
B
C
D
Point
A
B
C
D
Demand
Market demand for potatoes (monthly)Market demand for potatoes (monthly)
0
20
40
60
80
100
0 100 200 300 400 500 600 700 800
Quantity (tonnes: 000s)
Pri
ce (
pen
ce p
er k
g)
Price(pence per kg)
20
40
60
80
100
Market demand(tonnes 000s)
700
500
350
200100
A
B
C
D
E
Point
A
B
C
D
E
Demand
Market demand for potatoes (monthly)Market demand for potatoes (monthly)
Demand and supply analysisDemand and supply analysis
Shifts in thedemand curveShifts in the
demand curve
D1
Pric
e
P
O Q0 Q1
Quantity
An increase in demandAn increase in demand
D0
D0
Pric
e
P
O Q0 Q1
Quantity
A decrease in demandA decrease in demand
D1
Demand and supply analysisDemand and supply analysis
The supply curveThe supply curve
The supply curve:The supply of potatoes (monthly)
The supply curve:The supply of potatoes (monthly)
0
20
40
60
80
100
0 100 200 300 400 500 600 700 800
Pri
ce (
pen
ce p
er k
g)
Quantity (tonnes: 000s)
Supply
a
P
20
Q
100a
Market supply of potatoes (monthly)Market supply of potatoes (monthly)
0
20
40
60
80
100
0 100 200 300 400 500 600 700 800
Pri
ce (
pen
ce p
er k
g)
Quantity (tonnes: 000s)
Supply
a
b
P
20 40
Q
100200
ab
Market supply of potatoes (monthly)Market supply of potatoes (monthly)
0
20
40
60
80
100
0 100 200 300 400 500 600 700 800
Pri
ce (
pen
ce p
er k
g)
Quantity (tonnes: 000s)
Supply
a
b
c
P
20 40 60
Q
100200350
abc
Market supply of potatoes (monthly)Market supply of potatoes (monthly)
0
20
40
60
80
100
0 100 200 300 400 500 600 700 800
Pri
ce (
pen
ce p
er k
g)
Quantity (tonnes: 000s)
Supply
a
b
c
d P
20 40 60 80
Q
100200350530
abcd
Market supply of potatoes (monthly)Market supply of potatoes (monthly)
0
20
40
60
80
100
0 100 200 300 400 500 600 700 800
Pri
ce (
pen
ce p
er k
g)
Quantity (tonnes: 000s)
Supply
a
b
c
d
e
P
20 40 60 80100
Q
100200350530700
abcde
Market supply of potatoes (monthly)Market supply of potatoes (monthly)
Demand and supply analysisDemand and supply analysis
Shifts in thesupply curveShifts in thesupply curve
P
QO
S0
Shifts in the supply curveShifts in the supply curve
P
QO
S0
Increase
S1
Shifts in the supply curveShifts in the supply curve
P
QO
S2 S0 S1
IncreaseDecrease
Shifts in the supply curveShifts in the supply curve
Demand and supply analysisDemand and supply analysis
Market equilibriumMarket equilibrium
Equilibrium price and output:The Market Demand and Supply of Potatoes (Monthly)
Equilibrium price and output:The Market Demand and Supply of Potatoes (Monthly)
0
20
40
60
80
100
0 100 200 300 400 500 600 700 800
The determination of market equilibrium (potatoes: monthly)
The determination of market equilibrium (potatoes: monthly)
Quantity (tonnes: 000s)
E
D
C
B
Aa
b
c
d
e
Supply
Demand
Pri
ce (
pen
ce p
er k
g)
0
20
40
60
80
100
0 100 200 300 400 500 600 700 800
Quantity (tonnes: 000s)
E
C
B
Aa
b
c
e
Supply
Demand
Pri
ce (
pen
ce p
er k
g)
D dSURPLUS
(330 000)
The determination of market equilibrium (potatoes: monthly)
The determination of market equilibrium (potatoes: monthly)
0
20
40
60
80
100
0 100 200 300 400 500 600 700 800
Quantity (tonnes: 000s)
E
D
C
B
Aa
b
c
d
e
Supply
Demand
Pri
ce (
pen
ce p
er k
g)
SHORTAGE
(300 000)
The determination of market equilibrium (potatoes: monthly)
The determination of market equilibrium (potatoes: monthly)
0
20
40
60
80
100
0 100 200 300 400 500 600 700 800
D d
Qe
Quantity (tonnes: 000s)
E
B
Aa
b
e
Supply
Demand
Pri
ce (
pen
ce p
er k
g)The determination of market equilibrium
(potatoes: monthly)The determination of market equilibrium
(potatoes: monthly)
Demand and supply analysisDemand and supply analysis
Effect of shift in the demand curve
Effect of shift in the demand curve
P
QO
Pe1
Qe1
S
D1
g
Effect of a shift in the demand curveEffect of a shift in the demand curve
An increase in demand
P
QO
Pe1
Qe1
S
D1
g
Effect of a shift in the demand curveEffect of a shift in the demand curve
P
QO
Pe1
Qe1
S
D1
D2
g
Effect of a shift in the demand curveEffect of a shift in the demand curve
P
QO
Pe1
Qe1
S
g h
D1
D2
Pe2
Qe2
i
Effect of a shift in the demand curveEffect of a shift in the demand curve
P
QO
Pe1
Qe1
S
D1D2
g
A decrease in demand
Effect of a shift in the demand curveEffect of a shift in the demand curve
P
QO
Pe1
Qe1
S
D1D2
g
Pe2
Qe2
n
m
Effect of a shift in the demand curveEffect of a shift in the demand curve
Demand and supply analysisDemand and supply analysis
Effect of shift in the supply curve
Effect of shift in the supply curve
P
QO
Pe1
Qe1
D
S1
g
Effect of a shift in the supply curveEffect of a shift in the supply curve
A decrease in supply
P
QO
Pe1
Qe1
D
S1
g
Effect of a shift in the supply curveEffect of a shift in the supply curve
P
QO
Pe1
Qe1
D
S1
S2
g
Effect of a shift in the supply curveEffect of a shift in the supply curve
P
QO
Pe1
Pe3
Qe3Qe1
D
S1
S2
j g
k
Effect of a shift in the supply curveEffect of a shift in the supply curve
P
QO
Pe1
Qe1
D
S1
g
An increase in supply
S2
Effect of a shift in the supply curveEffect of a shift in the supply curve
P
QO
Pe1
Qe1
D
S1
g
S2
p
Pe2
Qe2
q
Effect of a shift in the supply curveEffect of a shift in the supply curve
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