Principles of Microeconomics

Demand and Supply Analysis

MARKETS AND COMPETITION

Demand

Qd = 2,000 – 500P Price Range = P1 – P5

Illustration

Price Quantity Demanded

Illustration

Price of x (per kilo)

Quantity Demanded

(in kilo)

Php 45 100

40 150

35 200

30 250

25 300

20 350 0

10

20

30

40

50

Pri

ce o

f X

(p

er

kilo

)

Quantity Demanded (in kilos)

Demand Curve

CHANGES IN QD AND MOVEMENTS ALONG THE DEMAND CURVE

Price of x (per kilo)

Quantity Demanded

(in kilo)

Php 45 100

40 150

35 200

30 250

25 300

20 350 0

10

20

30

40

50

Pri

ce o

f X

(p

er

kilo

)

Quantity Demanded (in kilos)

Demand Curve

PRICE QUANTITY DEMANDED

PRICE QUANTITY DEMANDED

Non-price determinants of Demand

• Income • Expectation on future prices, •Prices of related goods like substitutes and

complements, • Size of population, •Quality of product, • Taste and preference •Promotion and/or advertisement •Religion •Customs/traditions • Fad or fashion

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

0 5 10 15 20 25 30

P

Q

Suppose the number

of buyers increases.

Then, at each P,

Qd will increase

(by 5 in this example).

Shifts in the Demand Curve

1. Increase in income

2. Decrease in income

3. Greater taste/preference

4. Less taste/preference

5. Increase in population

6. Decrease in population

7. Greater speculation

8. Less speculation

A. The price of iPods falls

B. The price of music downloads falls

Draw a demand curve for music downloads.

What happens to it in each of

the following scenarios? Why?

Quick Activity

Q2

Price of

music

down-

loads

Quantity of

music downloads

D1 D2

P1

Q1

A. Price of iPods falls

Price of

music

down-

loads

Quantity of

music downloads

D1

P1

Q1 Q2

P2

B. Price of music downloads falls

SUPPLY

Illustration

Price of x (per kilo)

Quantity Supplied (in kilo)

Php 45 180

40 150

35 120

30 90

25 60

20 30

0

10

20

30

40

50

30 60 90 120 150 180

Supply Curve

PRICE QUANTITY SUPPLIED

PRICE QUANTITY SUPPLIED

Price of x (per kilo)

Quantity Supplied (in kilo)

Php 45 180

40 150

35 120

30 90

25 60

20 30

0

10

20

30

40

50

30 60 90 120 150 180

Supply Curve

Non-price determinants of Supply

1. Cost of production

2. Availability of economic resources

3. Number of firms in the market

4. Technology applied

5. Producer’s goals

6. Taxes and subsidies

7. Price of the product

8. Price expectation

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

0 5 10 15 20 25 30 35

P

Q

Suppose the

price of milk falls.

At each price,

the quantity of

Lattes supplied

will increase

(by 5 in this

example).

0

10

20

30

40

50

30 60 90 120 150 180

Shift in Supply Curve

Changes in the Supply Curve

1. Increase in the number of sellers

2. Decrease in the number of sellers

3. Decrease in cost of production

4. Goals of the firm

Price of x (per kilo)

Quantity Supplied (in kilo)

Quantity Demanded

(in kilo)

Php 45 180 100

40 150 150

35 120 200

30 90 250

25 60 300

20 30 350

Market Equilibrium

0

10

20

30

40

50

30 60 90 120 150 180

Demand and Supply Curve

P

Q

D1

S1

P1

Q1

S2

P2

Q2

A SHIFT IN SUPPLY

P

Q

D1

S1

P1

Q1

D2

P2

Q2

A SHIFT IN DEMAND

P

Q

D1

S1

P1

Q1

S2

D2

P2

Q2

A SHIFT IN BOTH DEMAND AND SUPPLY

RUDOLPH D. VELASCO, MM

rudolph_tornado@yahoo.com.ph http://istudyguide.weebly.com

Photo Sources

• http://abhinavpmp.com/wp-content/uploads/market-competition-advantages.jpg

• http://www.hillsboroughtitle.com/wp-content/uploads/2012/09/Supply-and-Demand-Pic1.jpg

• http://www.softwarethinktank.com/wp-content/uploads/bmm0122l-new1-383x241.jpg

• http://www.saigon-gpdaily.com.vn/dataimages/original/2010/12/images193422_C1a.jpg

• Graphs and Quick Activity Source: Premium PowerPoint Slides by Ron Cronovich