DEMAND AND SUPPY 1

DEMAND

Demand Curve

The relationship between the market price of a good and the

quantity demanded of that good, other things held constant.

Effective Demand

- Quantity of a good or service that consumers are

actually buying at the current market price.

- Aggregate actual demand in an economy supported

by the consumers' capacity to pay.

2

LAW OF DEMAND

As the price of a product increases, quantity demanded

falls; likewise, as the price of a product decreases,

quantity demanded increases.

When the price of a commodity is raised (and other

things are held constant), buyers tend to buy less of the

commodity.

When the price is lowered, other things being contant,

quantity demanded increases.

3

0

2

4

6

8

10

12

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Pri

ce

Quantity

D

4

Demand Curve TABEL

Price (Rp) Quantity (Unit)

A 10 1

B 9 2

C 8 5

D

E

7

6

10

16

A B

C C D

E

1. Income effect

when a price goes up, I find myself somewhat poorer than I was before.

If gasoline price double, I have in effect less real income, so I will naaturally curb my consumption of gasoline and other goods.

2. Substitution effect

which occurs because a good becomes relatively more expensive when its price rises.

When the price of good A rise, I will generally substitute goods B, C, D, ...for it.

5

Quantity demanded tends to fall as price rises for 2 reasons :

Habits, tastes and fashions remain same.

Income level should remain constant

The function shows the relationship between Price and Quantity Demanded at a static time (t).

Income of the consumer does not change.

Prices of related goods remain constant.

Number of buyers remain constant.

The commodity is a normal good and has no prestige or status value.

People do not expect changes in the price.

Price is independent and quantity demanded is dependent.

6

Assumptions :

1. Shift in Curves

Which denoted a shift of the demand curve.

The effect of rising average income or increased

population or lower prices of related goods.

7

Shift in Demand :

0 Q1 Q2 Q3 Jumlah

Permintaan

P

D1 D2 D3

2. Movements along curves

Which means moving along, or moving to a different point,

on the same demand curve after a price change.

8

Shift in Demand :

0 Q Q1 Jumlah

Harga

P1

D

P

D

Average income

As people’s income rise, individuals tend to buy more of almost everything, even it prices don’t change.

Tastes

Tastes represent a variety of cultural and historical influences.

Prices and availabilty of related goods Lower gasoline prices raise the demand for cars.

Special influences Include availability of alternative forms of transportation,

safety of automobiles, expectations of future price increases.

Population

A growth in population increases car purchases.

9

Factors affecting the demand curve :

Supply Curve The relationship between its market price and the amount of that commodity that producers are willing to produce and sell, other things held constant.

A smooth curve is give the upward-sloping supply curve.

10

Supply

When the price offered is raised (and other things are

held constant), seller tend to sell more of the commodity.

When the offered is lowered, other things being

contant, quantity supplied decreases.

11

Law of Supply

0

1

2

3

4

5

6

4 8 12 16 20

Pri

ce

Quantity

SC

B

A

12

Supply Curve TABLE

Price (Rp) Quantity (Unit)

A 5 20

B 4 16

C 3 12

D

E

2

1

8

4

E

D

1. Input prices.

A reduction in the wage paid to autoworkers lowers production costs and increases supply

2. Prices of related goods. If truck prices fall, the supply of cars rises.

3. Technology. Computerized manufacturing lowers production costs and

increases supply.

4. Government policy Removing quotas and tariffs on imported automobils increases total

automobile supply.

5. Special influences Internet shopping and auctions allow consumers to compare the

prices of different dealers more easily and drives high-cost sellers out of business.

13

Factors affecting the supply curve :

1. Process of inputs and technological advances.

2. Input price should remain contant.

3. Time .

14

Assumptions :

ELASTICITY

Is the responsiveness of one variable to changes in another.

Divided by :

1. Price elasticity of demand

2. Price elasticity of supply

15

16

Price elasticity of demand

Coefisien Elasticity

Measures how much the quantity demanded of a good changes when its price changes.

ED = % change in quantity demanded

% change in price

VALUE OF DEMAND ELASTICITY

1. E > 1 : Elastic.

2. E < 1 : In elastic.

3. E = 1 : Unit elastic .

17

The market equilibrium comes at that price and

quantity where the forces of supply and demand are in

balance.

At the equilibrium price, the amount that buyers want

to buy is jusst equal to the amount that sellers want

to sell.

18

Price Equilibrium

19

Price Equilibrium

Price (Rp) Quantity

demanded

Quantity

supplied

State of market

500 200 1000 Excess supply

400 400 800

300 600 600 Equilibrium

200 800 400 Excess demand

100 1000 200

Table

0

100

200

300

400

500

600

200 400 600 800 1000

Pri

ce

Quantity

D

S

Excess Supply

Excess Demand

S

S1

D

D1

E

20

Price Equilibrium

Marginal Buyer : any buyer who purchases has a willingness to pay in the market price

Super-Marginal Buyers :

any buyer who purchases has a willingness to pay above the

market price

Sub-Marginal Buyers :

any buyer who purchases has a willingness to pay below the

market price

21

Marginal Buyer

Marginal Seller : any firm who produces has a willingness to pay in the market price.

Sub-Marginal Seller :

any firm who produces has a willingness to sell above the

market price.

Super-Marginal Seller :

any firm who produces has a willingness to sell below the

market price.

22

Marginal Seller