Demand, Supply and Its

Interactions
Team Teaching Economic
Intro

• Economics emerged in the 18th century, through Adam Smith's book

"An Inquiry into the Nature and Causes of the Wealth of Nations"
which came to be known as The Wealth of Nations (1776),
• Economy as a system has a role to maintain equilibrium in an
economic system
• Economic disturbance occurs when there inequilibrium
Intro
• The issue of economic will be restored if the equilibrium reached by
the system that called invisible hand”.

• Adam Smith's theory was developed more further among others by

J.B. Say, Thomas Malthus and David Ricardo, which at the end known
as market theory,

• Market in the economy means interactions demand and supply that

interact with each other to produce a price determination.
THE LAW OF DEMAND
“Inverse Relationship between Price and Quantity Demanded”

When the price of goods or services increase, so the quantity

demanded will be decrease, and vice versa

WARNING:
Quantity demanded vs Demand
???
DEMAND
General Understanding:
Is the desire of consumers to buy goods or services at various price levels
over a certain period of time,

Factors affecting demand level are:

• Price of the goods or services itself
• Prices of other related goods (substitute or complementer)
• The level of income per capita
• Taste or habit
• Total population
• Estimated price in the future
• Revenue Distribution
• Producer's efforts to increase revenue
Demand Function
Is the demand stated in a mathematical relationship with the factors
that affect it.

With the demand function, we can find out the relationship between
the dependent variables and the independent variables.
DEMAND FUNCTION
Fungsi Permintaan secara matematis dapat ditulis sebagai berikut:
Demand Curve and Schedulle
Demand schedule is a list of relationships between the price of an item and
the level of demand for that goods or services which derived from a demand
equation.

For example:
The demand of rice in Bandung can be shown in a equation as follows:
Qr = 100 – 10P

Where: Qr = demand for rice in Bandung

P = Price level of rice in bandung
Rice Demand Schedule
From the equation, we can substitute “P” any value of price in the
equation. In this case, we Level
Rice Prive put price for Demand
0, 2.000,of Rice4.000, 6.000, 8.000,
10.000. So, the schedule
Per kgof Rice demandPercan
(Rp.) seen
bulan as follows:
(ribu ton)
0 100
2.000 80
4.000 60
6.000 40
8.000 20
10.000 0
Rice Demand Curve
From the schedule, we also can transform the schedule into rice
demand curve as follows: The angle (alpha) has a slope of
ΔQd / ΔP = -10 (minus ten),
which means that if the price of
rice changes 1 unit, the demand
for rice will change 10 units in
the opposite direction.
Change on Quantity Demanded
• is a change in the quantity of goods demanded due to the change of
price (only)

• If this happens, then the change will only occur in the same curve
(movement along demand curve).
Movement Along The Curve
Movement Along the Curve
Change of Demand
• Changes in demand occur when non-price factors change.

• This change will cause a shift in the demand curve (shifting).

• For example, if income increase, the demand curve will move to the
right, vice versa If income decrease, the demand curve will move to
the left.
Demand Curve Shifting
Exeption to the Law of Demand
• Inferior goods, goods whose prices decrease/income increases,
demand will decrease,

• Speculative Goods, when the price increase the demand will increase
too. This happen because of the expectation of price increase in the
future.

• Prestige goods, which when the price of certain goods or services

increase will causes the price also increase, this happen because the
person who bought the goods will bring prestige level to its owner.
Exeption to the Law of Demand
• Giffen goods is the goods when its price decrease will cause the
quantity demanded will decrease, which is caused by the negative
effects of large giffen goods.
Inferior vs. Giffen
Inferior goods have same meaning with giffen, but in inferior goods are
case-by-case, whereas giffen goods are generally accepted, so:

Giffen goods must be inferior goods, but inferior goods are not
necessarily giffen goods.
SUPPLY
Supplies is the amount of goods that producers want to offer (sell) at
various price levels during a certain period,

Factors affecting supply:

• Price of goods and services itself
• Input of production prices (capital and labor)
• Production technology
• Number of traders / sellers
• Company Purpose
• Government policy (i.e Taxes)
Supply Function
s a stated of supply stated in a mathematical relationship with the
factors that influence+it. +/- - - + + +/- +
Sx = f (Px, Py, Pi, C, tech, income, vision, policy)
Supply Curve
TEST DRIVE
If supply function of a car market in Bandung is shown as follows:
Qs = -40 + 5P

Find the supply schedule and curve if the price level of car in Badung is
80, 90, 100, 110 and 120.