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  • Lec 23

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    Lahiru Senadheera
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    This document discusses demand, supply, and market equilibrium. It defines demand as the quantity of a good people are willing to buy at a given price. The three factors of effective demand are desire, ability to pay, and willingness to pay. The quantity demanded varies inversely with price according to the law of demand. Supply is defined as the quantity supplied at a given price and time. When price increases, quantity supplied also increases. Market equilibrium exists when supply equals demand at a price where both markets clear. Consumer surplus measures what consumers are willing to pay minus what they actually pay, while producer surplus is what producers receive minus their lowest price willing to accept.

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    This document discusses demand, supply, and market equilibrium. It defines demand as the quantity of a good people are willing to buy at a given price. The three factors of effective demand are desire, ability to pay, and willingness to pay. The quantity demanded varies inversely with price according to the law of demand. Supply is defined as the quantity supplied at a given price and time. When price increases, quantity supplied also increases. Market equilibrium exists when supply equals demand at a price where both markets clear. Consumer surplus measures what consumers are willing to pay minus what they actually pay, while producer surplus is what producers receive minus their lowest price willing to accept.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    4 views3 pages

    Lec 23

    Uploaded by

    Lahiru Senadheera
    This document discusses demand, supply, and market equilibrium. It defines demand as the quantity of a good people are willing to buy at a given price. The three factors of effective demand are desire, ability to pay, and willingness to pay. The quantity demanded varies inversely with price according to the law of demand. Supply is defined as the quantity supplied at a given price and time. When price increases, quantity supplied also increases. Market equilibrium exists when supply equals demand at a price where both markets clear. Consumer surplus measures what consumers are willing to pay minus what they actually pay, while producer surplus is what producers receive minus their lowest price willing to accept.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 3

    3/2/2015

    Demand
     The quantity people are willing to buy at a given price and
    during a period of time

     3 factors of an effective demand


     A desire to buy a good or service
     The ability to pay the price for it
    Demand and Supply  The willingness to pay

     Law of demand
    Lecture 2  The quantity demand affect inversely with the price

    Quantity Demand Change in Demand


     A particular quantity demanded at a particular price  Changes in demand due to the changes happened in
     A change in quantity demand other factors and not the price
     Change happens to a quantity when the price is changed

     Contraction of Demand
     When price rises the quantity demanded fall

     Extension of Demand
     When price falls the quantity demanded rise

    Supply Change in Supply


     Quantity of product that the suppliers supply a t a given  Change in supply that is caused by the other factors and
    price and at a given time not the price

     Extension – When price rises, the quantity supplied rise


     Contraction – When price falls, the quantity supplied falls

    1
    3/2/2015

    Substitutes Complements
     A fall in Fresh Milk supply lead in rise in its price  Complements are the goods consumed together to
     Therefore the quantity demand on the fresh milk fall (S1 S2) satisfy a want (joint demand)
     This increases demand for a substitute product (milk powder)  Tennis racket supply increases with the price fall (S S1)
    (D1 D2)  Therefore tennis racket demand will rise
     Tennis ball demand will rise (D1 D)

    Fresh Milk Milk Powder


    Tennis Racket Tennis Ball

    Market Equilibrium
     It is the state where the market supply is equal to the
    market demand

     The equilibrium price is that supplying price of a product


    or service is equal to the demand for it within the market

    Equilibrium

    Lecture 3

    Excess Demand (Shortage) Excess Supply (Surplus)


     Quantity demand is greater than the quantity supplied at  Quantity supplied exceeds the quantity demanded at the
    the current price current price

    2
    3/2/2015

    Consumer Surplus
     The difference of the amount that the customer is willing
    to pay and able to pay

    Producer Surplus
     the amount that producers benefit by selling at a market
    price that is higher than the least that they are willing to
    sell

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