Mic 2

Microeconomics All Rights Reserved
© Oxford University Press Malaysia, 2008

2– 1
CHAPTER
2 Demand and Supply

2– 2
DEFINITION OF DEMAND
Demand is defined as the ability and

willingness to buy specific quantities
of goods in a given period of time at a
particular price, ceteris paribus.

2– 3
LAW OF DEMAND
Law of demand states that the higher the
price of a good, the lower the quantity
demanded for that good and lower the price,
quantity demanded is higher, ceteris paribus.
P  QDD  P  QDD 
NEGATIVE RELATIONSHIP

2– 4
DEMAND SCHEDULE AND
DEMAND CURVE
Demand Schedule Demand Curve
Price Quantity 12
D
9.0 2 10
8.5 4 8
6
8.0 6 4 DD
7.5 8 2 D
7.0 10 0
2 4 6 8 10

2– 5
INDIVIDUAL AND MARKET
DEMAND
INDIVIDUAL DEMAND
The relationship between the quantity of a good
demanded by a single individual and its price.
MARKET DEMAND
The relationship between the total quantity
of a good demanded by adding all the quantities
demanded by all consumers in the
market and its price.

2– 6
CHANGES IN DEMAND AND
QUANTITY DEMANDED
CHANGE IN QUANTITY DEMANDED CHANGE IN DEMAND
Price Price
DD1
DD DD0
Quantity Quantity
 Movement along the demand curve
 Price changes and other factors are constant  Shift in the demand curve
 Upward movement: Decrease in quantity  Occurs when changes in other factors and
demanded (contraction) price remains constant
 Downward movement: Increase in quantity  Increase in demand (DD0  DD1 )
demanded (expansion)  Decrease in demand (DD1  DD0 )

2– 7
THE DETERMINANTS OF DEMAND
Consumers’
Income Tastes and
Fashions
Price of
Related Goods
Population or
Number of
Buyers
Festive
Seasons and
Climate Expectation
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2– 8
EXCEPTIONAL DEMAND
Exceptional demand is against the Law of
Demand where as price increases, demand will also
increase and vice versa
GIFFEN GOODS
STATUS SYMBOL GODS
SPECULATION
EMERGENCIES
2– 9
INTERRELATED DEMAND
The demand for a good is also affected by the

price of its substitute or complementary goods.
Cross demand can be divided into: joint demand
and competitive demand.
Derived demand is the demand for a good which is

derived from other goods.
2– 10
DEFINITION OF SUPPLY
Supply is defined as the

ability and willingness to sell or
produce a particular product and
services in a given period of time at
particular price, ceteris
paribus.

2– 11
LAW OF SUPPLY
Law of supply states that the higher the
price of a good, the greater is the quantity
supplied for that good and lower the price,
quantity supplied is lower, ceteris paribus.
P  Qss P  Qss 
POSITIVE RELATIONSHIP

2– 12
SUPPLY SCHEDULE AND
SUPPLY CURVE
Supply Schedule SupplyCurve
Price Quantity 12
9.0 10 10 S
8.5 8 8
6
8.0 6 4 SS
7.5 4 2 S
7.0 2 0
1 2 3 4 5

2– 13
INDIVIDUAL AND MARKET SUPPLY
INDIVIDUAL SUPPLY
The relationship between quantity of a product
supplied by a single seller and its price.

MARKET SUPPLY
The relationship between total quantity of a product
supplied by adding all the quantities supplied by
all sellers in the market and its price.
2– 14
CHANGES IN QUANTITY SUPPLIED
AND CHANGE IN SUPPLY
CHANGE IN QUANTITY SUPPLIED CHANGE IN SUPPLY
Price Price
SS0
SS SS1
Quantity
Quantity
 Movement along the supply curve Shift in the supply curve

 Price changes and other factors are constant Occurs when changes in other factors
 Downward movement: Decrease in quantity and price remains constant
supplied (contraction) Increase in supply (SS0  SS1 )
 Upward movement: Increase in quantity
Decrease in supply (SS1  SS0 )
supplied (expansion)

2– 15
EXCEPTIONAL SUPPLY
Exceptional supply is against the Law of Supply where as price
increases, the quantity supplied decreases and vice versa
Wage Rate
20 Income Effect
(Exceptional Supply
Curve)
15
10
Substitution Effect
Labour
0 1 2 3 4 5 6

2– 16
THE DETERMINANTS OF SUPPLY
Cost of Price of Related

Production Goods
Government
Policies Expectation
Number of Technological
Sellers Advancement

2– 17

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Microeconomics All Rights Reserved

© Oxford University Press Malaysia, 2008

2 Demand and Supply

Demand is defined as the ability and

Microeconomics All Rights Reserved

Microeconomics All Rights Reserved

Microeconomics All Rights Reserved

Microeconomics All Rights Reserved

Microeconomics All Rights Reserved

Microeconomics All Rights Reserved

STATUS SYMBOL GODS

The demand for a good is also affected by the

Derived demand is the demand for a good which is

Supply is defined as the

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Microeconomics All Rights Reserved

Microeconomics All Rights Reserved

 Movement along the supply curve Shift in the supply curve

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Cost of Price of Related

Microeconomics All Rights Reserved

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