Chapter 2: Demand and Supply

Law of Demand: Law of Supply:

● price of a good rises, quantity demanded ● price of a good rises, the quantity
fall supplied of the good rises
● price of a good falls, quantity demanded ● price of a good falls, the quantity
of that good rises, ceteris paribus supplied of the good falls

REMEMBER: KIRI TOLAK, KANAN TAMBAH

Demand Side Factors What will happen to the Demand Curve

1) No. of Buyers

● If the number of Buyer Increases, the ● Demand curve will shift to RIGHT
demand will increase
● If the number of Buyer Decreases, the ● Demand curve will shift to LEFT
demand will decrease

2) Income of the Buyer

● If the income increases, the demand for ● Demand curve will shift to LEFT
‘Inferior good (Barang bawahan) will
decrease
● If the income decrease, the demand for ● Demand curve will shift to LEFT
‘Inferior good’ will increase
● If the income increase, the demand for ● Demand curve will shift to RIGHT
‘Normal good’ will increase
● If the income decrease, the demand for ● Demand curve will shift to LEFT
‘Normal good’ will decrease

3) Price of Related Good and Services

 ● If the price of the substitution (Barang ● Demand curve will shift to RIGHT
pengganti) increase, the demand will
increase.
● If the price of the substitution (Barang ● Demand curve will shift to LEFT
pengganti) decrease, the demand will
decrease.
● If the price of the Complementary ● Demand curve will shift to RIGHT
(Barang penggenap) increase, the
demand will decrease.
● If the price of the Complementary ● Demand curve will shift to LEFT
(Barang penggenap) decrease, the
demand will increase

4.) Buyer expectation of future price

● If the buyer expect the price of g/s will ● Demand curve will shift to RIGHT
increase in the future, the demand will
increase
● If the buyer expect the future price will ● Demand curve will shift to LEFT
drop, the demand will decrease

5) Buyer’s Preferences
● Demand curve will shift to RIGHT
● If the buyer prefer more, the demand will
increase.
● If the buyer prefer less, the demand will
● Demand curve will shift to LEFT
decrease

Supply Side Factors What will happen to the Supply Curve

1) No. of Seller

● If the number of seller Increases, the ● Supply curve will shift to RIGHT
supply will increase
 ● If the number of seller Decreases, the ● Supply curve will shift to LEFT
supply will decrease

2) Level of Technologies

● If the level of technology increases, the ● Supply curve will shift to Right
supply will increase
● If the level of technology decreases, the
supply will decrease ● Supply curve will shift to Left

3) Price of Related Resources

● Supply curve will shift to LEFT
● If the price of the resources increase, the
supply will decrease.

● Supply curve will shift to RIGHT

● If the price of the resources decrease, the
supply will increase.

4.) Seller expectation of future price

● If the seller expect the price of g/s will ● Supply curve will shift to RIGHT
increase in the future, the demand will
increase
● If the seller expect the future price will ● Supply curve will shift to LEFT
drop, the demand will decrease

5) Government Taxes and Subsidies

● Supply curve will shift to LEFT
● If the government charge higher
production tax, the supply will decrease.
● If the government provide subsidies to
produce, the supply will increase
● Supply curve will shift to RIGHT
 A Movement along the Demand Curve
❖ Movement from one point to another
point on the same demand curve
❖ Caused solely by changes in the price of
the good itself (own price).
Diagram:
A Shift in the Demand Curves
❖ Demand curve will shift to the left (fall in
demand) or to the right (increase in
demand).
❖ Caused by demand side factors:
� Income
� Preference
� Expectation of future price
� Number of buyers and
� Prices of related goods
Diagram:
 A Movement along the Supply Curve
❖ Movement from one point to another
point on the same supply curve
❖ Caused solely by changes in the price of
the good itself (own price).
Diagram:
A Shift in the Supply Curves
❖ Supply curve will shift to the left (fall in
demand) or to the right (increase in
demand).
❖ Caused by dsupply side factors:
� No. of seller
� Seller expectation of future price
� Price of resources
� Government Taxes and Subsidies
� The level of technologies
Diagram: