THE MARKET FORCES OF

SUPPLY AND DEMAND

MPA PHẠM PHƯƠNG THẢO

CONTENT
• Definitions
1. DEMAND • Law of demand / supply
• Determinants of demand / supply
2. SUPPLY

3. MARKET • Equilibrium
EQUILIBRIUM • Changes in Equilibrium
I. DEMAND
 PRICE DEMAND
P (000VNĐ/Ticket) QD (Ticket)
500 2
The quantity demanded of
any good 1000 1

1500 0

2000 0

2500 0
QD ≠ 𝑫
3000 0
LAW OF DEMAND

The quantity demanded of a good falls when the price of the good rises, other things equal:
P rises -> D reduces and vice versa

Are there any goods and services that do not comply with the law of demand?
EXCEPTIONS TO THE LAW OF DEMAND

giffen goods
veblen goods

Exceptions to the law of demand,

https://www.intelligenteconomist.com/exceptions-to-the-law-of-demand/
 HOA’s DEMAND SCHEDULE FOR CONCERT
TICKETS
P QD
(000VNĐ/Ticket) (Ticket)
DEMAND
SCHEDULE: 500 2

1000 1

1500 0

2000 0

2500 0

3000 0
MARKET DEMAND SCHEDULE FOR
CONCERT TICKETS

P Qd Loan Qd Vũ Qd Sơn Qd Mai Qd Qd Qd FTU Qd

XYZ Class X Market

500 0 0 2 5 18 35 60
T
120
e
x
t

1000 0 0 1 4 15 30 50 100

1500 0 0 0 3 14 23 40 80

2000 0 0 0 2 13 15 30
2500 0 0 0 1 9 10 20
3000 0 0 0 0 5 5 10
DEMAND CURVE

is the graphical representation of the

demand schedule, it shows how much os a
good ow service consumers want to buy at
any price

MARKET DEMAND CURVE FOR

CONCERT TICKETS
 MARKET DEMAND SCHEDULE FOR CONCERT
TICKETS
P QD
DEMAND EQUATION: 500 120
1000 100
Qd=aP b, a<0
1500 80
Exercise: Calculate the demand 2000 60
equation for HAT’s concert
2500 40
ticket
3000 20
 QD= f(Px,Py,I,T,E,N)
DEMAND FUNCTION
Px: price of researched goods
Py: price of related goods
I: income
T: taste
E: expectation
N: number of consumers
DETERMINANTS
OF DEMAND

Price of goods and services

(Px)
Px up -> QD down -> upward movement along demand
curve
Px down -> QD up -> downward movement along
demand curve

Movement along demand curve

DETERMINANTS
OF DEMAND

Price of related goods (Py)

Substitute Good

subtitue goods - an increase in the price of

one results in an increase in the demand
for the other
DETERMINANTS
OF DEMAND

Price of related goods (Py)

Substitute goods
DETERMINANTS
Gas
OF DEMAND
and
stov
Prices of related goods (Py) e

Complementary goods

Printers
and ink
cartridg
e
DETERMINANTS
OF DEMAND

Price of related goods (Py)

X & Y are complementary
 If X is normal good:
DETERMINANT
S OF DEMAND

If X is a inferior good:
4.3. Income
TASTE
EXPECTATION
 NUMBER OF CONSUMERS

Nguồn: Hồ Chí Minh vs Hà Nội - Sự khác biệt giữa tính cách và giá trị,
https://www.brandsvietnam.com/congdong/topic/581-Ho-Chi-Minh-vs-Ha-Noi-Su-khac-biet-giua-tinh-cach-va-gia-tri
MOVEMENT VS. SHIFT OF THE DEMAND
CURVE

MOVEMENT SHIFT
II. SUPPLY
“It is not from the benevolence of
the butcher, the brewer, or the
baker that we expect our dinner,
but from their regard to their own
interest”

Adam Smith
1. DEFINITIONS

The quantity supplied of any good is P Qs

3000 120
2500 100
2000 80
1500 60
1000 40
500 20
MARKET SUPPLY FOR
CONCERT TICKET MARKET
2. LAW OF
SUPPLY

Is there any good that does not comply with the law of supply?
 AGENT #1 SUPPLY SCHEDULE

P (000Đ/TICKET) QS (TICKET)

Supply schedule: 500 0

1000 10

1500 20

2000 29

2500 35

3000 39
MARKET SUPPLY SCHEDULE
P QS Agent #1 QS Agent #2 QS Agent #3 QS Market
500 0 10 10
1000 10 15 15
1500 20 20 20
2000 29 26 25
2500 35 35 30
3000 39 40 41
 THE MARKET SUPPLY CURVE

Supply curve:
 P (000Đ/TICKET) QS (TICKET)
Supply equation

500 20

1000 40

1500 60

2000 80
Exercise: Find supply function
2500 100
of Ha Anh Tuan concert ticket.
3000 120
A supply function is QS=f (Px, Pi, G, Te, E, N)
4. DETERMINANTS
OF SUPPLY

4.1. Price of good and services

(Px)
4.DETERMINANTS
OF SUPPLY
P
4.2. Input prices (Pi)
S2 S1

Q
4.
DETERMINANTS P

OF SUPPLY S1

4.3. Government policy

Q
 4. DETERMINANTS OF SUPPLY
4.3. Technology

• Advanced and modern technology:

• Rudimentary,out-of-the-way
technology:
4. DETERMINANTS OF SUPPLY
4.4. SELLER EXPECTATIONS

Bong bóng hoa tulip

4. DETERMINANTS OF SUPPLY
4.5. NUMBER OF SELLERS
MOVEMENT vs. SHIFT OF SUPPLY CURVE
DEMAND OR SUPPLY,
WHICH COMES FIRST?
 III.
MARKET
EQUILIBRIUM
 1. MARKET
EQUILIBRIUM

Market Equilibrium (E)

WATER AND DIAMOND

VALUE PARADOX?
2. METHODS OF
DETERMINATION
P QS QD
(000Đ/TIC (TICKET) (TICKET)
KET)
Demand –supply
500 20 120
schedule
1000 40 100

1500 60 80

2000 80 60

2500 100 40

3000 120 20
2. METHODS OF
DETERMINATION

• Demand – supply
curve
2.3 METHODS OF
DETERMINATION

Supply and demand

equation

Find QE and PE of Hà Anh Tuấn

ticket?
3. CHANGE IN MARKET EQUILIBRIUM
Demand stays the same Demand goes up Demand goes down

same
Supply stays the

p*: p*:

q*: q*:

3 4
Supply goes up

p*: p*: p*:

q*: q*: q*:

1 5 6
Supply goes down

p*: p*: p*:

q*: q*: q*:

2 7 8
3. CHANGE IN MARKET EQUILIBRIUM
EXCEPTION?
4. SURPLUS
4.1 SHORTAGE
 5. PRICE CONTROL

Price ceiling:

Example: rent control.

 5. PRICE CONTROL

Price floor: