uLMAnu

1he amounL of a good or servlce

consumers are wllllng and able Lo
purchase durlng a glven perlod of Llme
(week monLh eLc)"
ueLermlnanLs of uemand
Genera||zed Demand Iunct|on
d f ( M k 1 e N)
W ;d ;uanLlLy demanded
W rlce of goods or servlces
W M Consumer's lncome
W k rlce of relaLed goods or servlce
W 1 1asLe paLLerns of consumer
W e LxpecLed prlce of goods ln some fuLure perlod
W n no of consumers ln Lhe markeL
uemand luncLlon
Pow quanLlLy demanded ls relaLed Lo producL
prlce holdlng consLanL Lhe flve oLher varlables
LhaL lnfluence demand
d f ()
AW Cl uLMAnu
W ;uanLlLy demanded lncreases when prlce
falls and quanLlLy demanded decreases when
prlce rlses oLher Lhlngs held consLanL"
k
W ;uanLlLy demanded varles lnversely wlLh
prlce"
CPLuuL Cl uLMAnu
r|ce uant|ty
Demanded
10 100
8 130
6 230
4 300
2 330 0
2
4
6
8
330 300 230 200
u
u
uant|ty Demanded
r|ce
a
b
c
d
bc exLenslon (sLrengLhenlng)
dc conLracLlon (weakenlng)
hlfLs ln uemand
W ncrease |n Demand ncrease ln quanLlLy
demanded aL every prlce rlghLward shlfL ln
demand curve D1
W Decrease |n Demand uecrease ln quanLlLy
demanded aL every prlce lefLward shlfL ln
demand curve D2
hlfLs ln uemand Curve
100
0
200 300 400 300 600
10
20
30
40
30
60
20200
20300
40100 40200
r|ce
uant|ty
D0 D1 D2
uemand ncrease
uemand uecrease
LxcepLlon Lo Lhe aw of uemand
W nob value
W Clffen's paradox
W nflaLlon
W Plgher prlce
ueLermlnanLs of upply
Genera||zed Supp|y Iunct|on
s g ( r 1 e I)
W ;s ;uanLlLy supplled
W rlce of goods or servlces
W rlce of Lhe lnpuLs used Lo produce goods
W k rlce of goods relaLed ln producLlon
W 1 1he level of avallable Lechnology
W e LxpecLed prlce of goods ln some fuLure perlod
W l no of flrms or Lhe amounL of producLlve
capaclLy ln Lhe lndusLry
upply luncLlon
Pow quanLlLy supplled ls relaLed Lo producL
prlce holdlng consLanL Lhe flve oLher varlables
LhaL lnfluence supply
s g ()
upply chedule
r|ce uant|ty
Demanded
60 700
30 600
40 300
30 400
20 300
10 200
0
10
20
30
40
300 400 300 200
30
600
uant|ty Supp||ed
r|ce
s
s
Supp|y pr|ce 1he mlnlmum prlce necessary Lo lnduce producers volunLarlly
Lo offer a glven quanLlLy for sale
hlfLs ln upply Curve
W ncrease |n supp|y ncrease ln quanLlLy
supplled aL every prlce rlghLward shlfL ln
supply curve S1
W Decrease |n supp|y uecrease ln quanLlLy
supplled aL every prlce lefLward shlfL ln
supply curve S2
hlfLs ln upply Curve
100
0
200 300 400 300 600
10
20
30
40
30
60
r|ce
uant|ty
upply
decrease
upply lncrease
40200 40300
20200
20300
S0
S1
S2
MarkeL Lqulllbrlum
W Market Lqu|||br|um AL Lhe prevalllng prlce
consumers can buy all of a good Lhey wlsh and
producers can sell all of Lhe good Lhey wlsh
W rlce aL whlch d s
W Lqu|||br|um pr|ce 1he prlce aL whlch d s
W Lqu|||br|um quant|ty 1he amounL of a good boughL
and sold ln markeL equlllbrlum
W Lxcess supp|y (surp|us) LxlsLs when quanLlLy supplled
exceeds quanLlLy demanded
W Lxcess demand (shortage) LxlsLs when quanLlLy
demanded exceeds quanLlLy supplled
MarkeL Lqulllbrlum
r|ce uant|ty Supp||ed uant|ty
Demanded
Lxcess supp|y (+) or
excess demand ()
63 730 0 +730
60 700 100 +600
30 600 300 +300
40
(Lqulllbrlum
prlce )
300 S00
(Lqulllbrlum
quanLlLy)
0
30 400 700 300
20 300 900 600
10 200 1100 900
MarkeL Lqulllbrlum
100
0
300 300 700 900 1100
10
20
30
40
30
60
r|ce
uant|ty
S0
D0
ML
Celllng and lloor rlce
W e|||ng r|ce 1he maxlmum prlce Lhe
governmenL permlLs sellers Lo charge for a
good
W I|oor r|ce 1he mlnlmum prlce Lhe
governmenL permlLs sellers Lo charge for a
good
Celllng rlce
100
0
300 300 700 900 1100
10
20
30
40
30
60
r|ce
uant|ty
S0
D0
ML
lloor rlce
100
0
300 300 700 900 1100
10
20
30
40
30
60
r|ce
uant|ty
S0
D0
ML
rlce LlasLlclLy of demand
W L measures how much Lhe quanLlLy demanded of a good
changes when lLs prlce changes
W ercenLage change ln quanLlLy demanded dlvlded by
percenLage change ln prlce
n ;
n prlce elasLlclLy
prlce of commodlLy
; quanLlLy demanded
small change ln prlce
; change ln quanLlLy demanded
;
1ypes of rlce LlasLlclLy of uemand
W erfect|y e|ast|c demand e ~ A small change ln prlce
leads Lo lnflnlLe change ln quanLlLy demanded
W erfect|y |ne|ast|c demand e 0 ;uanLlLy demanded
responds noL aL all Lo prlce changes
r|ce
uant|ty
D D
r|ce
uant|ty
D
D
1ypes of rlce LlasLlclLy of uemand
W unlL LlasLlc uemand e1 roporLlonaLe
change ln prlce causes equal proporLlonaLe
change ln quanLlLy demanded
W LlasLlc uemand e1 Change ln prlce causes
more Lhan proporLlonaLe change ln quanLlLy
demanded
r|ce Demand
ks 10 200
ks S S00
r|ce
uant|ty
D
D
r|ce
uant|ty
D
D
10
3
200 300
1ypes of rlce LlasLlclLy of uemand
W nelasLlc uemande1 Change ln prlce
causes less Lhan proporLlonaLe change ln
demand
r|ce Demand
ks 10 200
ks S 300
r|ce
uant|ty
D
D
10
3
200
300
LlasLlclLy on a sLralghL llne
W AL hlgh prlce elasLlclLy ls hlgher and aL lower
prlce elasLlclLy ls lower
uant|ty
r|ce
A
8
M
8
Z
L1
L1
L1
rlce LlasLlclLy and 1oLal 8evenue
Lffect f L1 L1 L1
8lse ln rlce 18 lncreases 18 consLanL 18 decreases
lall ln rlce 18 decreases 18 consLanL 18 lncreases
Lxamp|e
S S 2S
rlce ;uanLlLy 1oLal 8evenue
L1 8 4 32
L1 6 6 36
L1 6 2 12
uemand analysls for varlous roducLs
W ubsLlLuLes 1ea Coffee
W ComplemenLary Car eLrol
W ndependenL en 1ooLhbrush
Cross rlce elasLlclLy of demand
W Lx8 ;x
8
ubsLlLuLes Cross elasLlclLy +ve
ComplemenLary goods Cross elasLlclLy ve
ndependenL goods cross elasLlclLy 0
Measure of responslveness of quanLlLy demanded
Lo changes ln Lhe prlce of a relaLed good
ncome LlasLlclLy
W LM ; ;$; ; M
M M$M M ;
LM ncome LlasLlclLy
; ;uanLlLy
M ncome
Measure of responslveness of quanLlLy
demanded Lo changes ln lncome
lacLors lnfluenclng demand elasLlclLy
and demand level
W number and closeness of subsLlLuLes
W PablLs
W erlod
W rlce level
uemand lorecasLlng
W horL Lerm seasonal paLLerns
W ong Lerm caplLal plannlng
W useful Lo asses magnlLude so as Lo arrange for
supply
redlcLlon or esLlmaLlon of Lhe fuLure
slLuaLlon under glven condlLlon abouL
demand