TAFADZWA MAHACHI ELLIOT MACHAGOMORA

R11073J
R11100Z

A)The Market Demand for a Commodity

Market demand is the sum of all the individual

demands Firms are interested in the total (or market) demand for the goods and services that they supply rather than in the demand of a particular individual or household. In a market system the plans of all the consumers and producers of a good or service have to be taken into account.

Deriving the Market demand schedule from individual demand schedules

Price of Tomatoes (R/KG
1 2 3 4 5

Anne (Kgs of tomatoes demanded

6 5 4 3 2

Helen (Kgs of Purvi (Kgs of tomatoes tomatoes demanded demanded

4 3 2 1 0 5 4 3 2 1

Market Demand

15 12 9 6 3

Px

D Qd

The Market Demand Curve

The market demand curve shows the relationship between the price of

tomatoes and the quantity demanded in the market (by all the consumers) during a particular period (in this case a week). Like the individual demand curve, the market demand curve also slopes downwards from left to right. In other words, it also shows an inverse or negative relationship between the price of tomatoes and the quantity demanded. The same factors which determine the individual quantities demanded also determine the total quantities demanded in the market
Qd = f ( Px, Pg, Y,T,N,...)............................................................... (7-4)

Cont ...

Where Qd = Quantity of tomatoes demanded Px = Price of tomatoes Pg = Price of related goods Y = total income of all prospective purchasers of tomatoes T = Tastes of all prospective purchasers of tomatoes N = Total number of potential consumers of tomatoes (total population in the market area) ... = allowance for any other possible influenceson the quantity of tomatoes demanded in the market

The market supply of a commodity

To move from individual supply to market supply, the individual

supplies are added together. The market supply curve is obtained in the same way as the market demand, except that we now add the individual supply curves. The market supply curve shows the relationship between the price of the product and the quantities supplied (by all the firms) during a particular period. Like the individual supply curve, the market supply curve also slopes upwards from left to right. In other words; there is a direct or positive relationship between price and quantity supplied. The same factors that determine the individual quantities supplied also determine the total quantities supplied in the market

Deriving the Market Supply Schedule From Individual Supply Schedules

Price $ 10 20 30 40 50 60 Farmer X (Kg) 20 30 45 60 80 100 Farmer Y (Kg) 30 40 65 80 100 120 Total Market Supply (Kg) 50 70 110 140 180 220

MARKET SUPPLY CURVE

P

Market Supply Curve and Formula

See appendix 2 for the curve

Qs Qs Px Pg Pf Pe Ty N ...

= f(Px, Pg, Pf,Pe,Ty,N,...) = quantity supplied in the market = price of the product = price of alternative markets = prices of factors of production and other inputs =expected future prices of the product = technology = number of firms supplying the product =allowance for other possible influences on the quantity supplied

Cont ...
In principle the market supply curve is the same as the individual

supply curve. The only difference is that the market supply pertains to all the prospective sellers of the product in a particular market. The total number of firms (N) supplying the product therefore has to be taken into account. In addition we allow explicitly for all the other factors which may influence the supply of the product. These other possible determinants include:

Government policy, for example subsidies on particular goods

or service tend to raise their supply while taxes tend to reduce supply. Natural disasters, Floods, earthquakes, and droughts have an impact on supply.

Cont...
Joint products and by-products (compliments in

production), some products are produced jointly with the result that a change in the supply of the major product results in a similar change in the supply of the by-product, for example beef and leather. Productivity, a change in the productivity of the factors of production will lead to a change in supply. If productivity falls, production costs increase, ceteris paribus, and supply decreases. Some of the determinants of supply are interdependent, e.g. if the relative price of a product is expected to increase, the number of firms supplying the market will increase.

c. The Equilibrium Condition

This is a condition where the level of quantity

demanded is equivalent to the level of quantity supplied. It is a condition of stability where everything that is supplied in the economy is demanded. There are no shortages or surplus as illustrated below:-

The market demand and supply of potatoes (monthly)

Price (kg) 20 40

Quantity Demand (kg) 700 500

Quantity Supplied (kg) 100 200

60
80 100

350
200 100

350
530 700

Diagram

P D Surplus EQ Shortage

D Q

Diagram
The diagram shows that the equilibrium price is $60.00 and

the equilibrium quantity is 350kg. At any price above $60.00 there would be a surplus. Thus more will be supplied than consumers are willing and able to purchase at any price above $60.00. At the price of $80.00 there is a surplus of 330 kgs which means a price of $80.00 fails to clear the market. Price will also fall as supplies try to clear their stock. At any price below $60.00 there would be a shortage thus demand will be exceedingly supply. this condition of excess demand leads to an increase in prices.

d.

A change in quantity demanded

It is the movement along the same demanded curve as

a result of a change in price. For example an increase in the price bread a change in quantity demanded.
P

A change in quantity supplied

It is the movement along the supply curve as a result of

a change in price. For example an increase in the price of potatoes will lead to an increase in the quantity supplied. P B
4 S

A Q

Change in demand
It is the shift in the demand curve as a result of

changes in the determinants of demand other than price. For example a change in income will lead a decrease or increase in demand.
P

D1

D1 Q

Change in supply
It is a shift in the supply curve as a result of changes in

the determinants of supply other than price. For example a change in income will lead to an increase or decrease in supply of potatoes.
P S1