CHAPTER

2
DEMAND AND SUPPLY
 LEARNING OUTCOMES

At the end of the chapter, you should be able to:

 Describe all types of goods.
 Explain the definition of demand, law of demand, individual
demand, and market demand.
 Differentiate between change in quantity demanded, change
in demand, the determinants of demand, and exceptional
demand.
 Explain the definition of supply, law of supply, individual
supply, and market supply.
 Differentiate between change in quantity supplied, change in
supply, the determinants of supply, and exceptional supply.

Fundamental of Economics All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2017 2– 3
 CLASSIFICATION OF GOODS

Fundamental of Economics All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2017 2– 4
 DEMAND, LAW OF DEMAND,
INDIVIDUAL DEMAND, AND MARKET
DEMAND
 Demand is defined as the different quantities of goods or services
which buyers are willing and able to buy at different possible prices
in a given period of time, ceteris paribus.
 Individual demand—this refers to the demand of goods and
services from a single consumer.
 Market demand—this is a horizontal summation of all the
individual demand in a particular market.
 The law of demand states that when the price of a good itself
increases, the quantity demanded for the good will fall and when
the price of the good decreases, the quantity demanded will
increase.

Fundamental of Economics All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2017 2– 6
 DEMAND, LAW OF DEMAND,
INDIVIDUAL DEMAND, AND MARKET
DEMAND (cont.)
 The relationship between the individual demand and
market demand is illustrated as below:

Fundamental of Economics All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2017 2– 7
 MOVEMENT ALONG A DEMAND
CURVE VERSUS SHIFT OF A DEMAND
CURVE

Fundamental of Economics All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2017 2– 8
 DETERMINANTS OF DEMAND

 Price of the good itself (movement along a demand

curve)
 Consumers’ preferences
 Consumers’ income
 Number of potential consumers/Market size
 Changes in the prices of related goods and services
 Consumers’ expectations of future prices
 Socio and economic conditions

Fundamental of Economics All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2017 2– 9
 SUPPLY, LAW OF SUPPLY, INDIVIDUAL
SUPPLY, AND MARKET SUPPLY (cont.)

Individual Supply and Market Supply

Fundamental of Economics All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2017 2– 13
 CHANGE IN QUANTITY SUPPLIED AND
CHANGE IN SUPPLY

Fundamental of Economics All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2017 2– 14
 DETERMINANTS OF SUPPLY

 Price of the good itself (movement along a supply

curve)
 Cost and availability of the factors of production
 Changes in the prices of related goods
 Level of technology
 Government or economic policy
 Producers’ expectations of future prices
 Number of suppliers

Fundamental of Economics All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2017 2– 15