Demand And Supply Analysis
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Demand and Supply Analysis
Demand and supply analysis
The price mechanism: effect of a rise in demand the goods market
The price mechanism: the effect of a rise in demand Goods Market Dg↑
shortage (Dg > Sg)
Pg↑
Sg↑ Dg↓
until Dg = Sg
Demand and supply analysis
The price mechanism: effect of a rise in demand factor markets
The price mechanism: the effect of a rise in demand Goods Market Dg↑
shortage (Dg > Sg)
Pg↑
Dg↓
Factor Market Sg↑
Df ↑
shortage (Df > Sf)
Sg↑
Pf ↑
until Dg = Sg
Sf ↑
until Df = Sf Df ↓
Demand and supply analysis
The demand curve
The demand curve:
The demand for potatoes (monthly)
Market demand for potatoes (monthly) Point Price Market demand (pence per kg) (tonnes 000s)
100
Price (pence per kg)
A
20
700
80
60
40
A
20
Demand 0 0
100
200
300 400 500 600 Quantity (tonnes: 000s)
700
800
Market demand for potatoes (monthly) Point Price Market demand (pence per kg) (tonnes 000s)
Price (pence per kg)
100
20 40
A B
80
700 500
60
B
40
A
20
Demand 0 0
100
200
300 400 500 600 Quantity (tonnes: 000s)
700
800
Market demand for potatoes (monthly) Point Price Market demand (pence per kg) (tonnes 000s)
Price (pence per kg)
100
20 40 60
A B C
80
700 500 350
C
60
B
40
A
20
Demand 0 0
100
200
300 400 500 600 Quantity (tonnes: 000s)
700
800
Market demand for potatoes (monthly) Point Price Market demand (pence per kg) (tonnes 000s)
Price (pence per kg)
100
D
80
C
60
20 40 60 80
A B C D
700 500 350 200
B
40
A
20
Demand 0 0
100
200
300 400 500 600 Quantity (tonnes: 000s)
700
800
Market demand for potatoes (monthly) 100
Price (pence per kg)
Point Price Market demand (pence per kg) (tonnes 000s)
E
D
80
C
60
20 40 60 80 100
A B C D E
700 500 350 200 100
B
40
A
20
Demand 0 0
100
200
300 400 500 600 Quantity (tonnes: 000s)
700
800
Demand and supply analysis
Shifts in the demand curve
An increase in demand
Price
P
D0 O
Q0
Q1 Quantity
D1
A decrease in demand
Price
P
D1 O
Q0
Q1 Quantity
D0
Demand and supply analysis
The supply curve
The supply curve: The supply of potatoes
(monthly)
Market supply of potatoes (monthly) 100
Supply P
Price (pence per kg)
80
a
20 100
60
40
a
20
0 0
100
200
300
400
500
Quantity (tonnes: 000s)
600
700
Q
800
Market supply of potatoes (monthly) 100
Supply P
Price (pence per kg)
80
a b
20 100 40 200
60
b
40
a
20
0 0
100
200
300
400
500
Quantity (tonnes: 000s)
600
700
Q
800
Market supply of potatoes (monthly) 100
Supply P
Price (pence per kg)
80
a b c
c
60
20 100 40 200 60 350
b
40
a
20
0 0
100
200
300
400
500
Quantity (tonnes: 000s)
600
700
Q
800
Market supply of potatoes (monthly) 100
Supply d
Price (pence per kg)
80
a b c d
c
60
P
Q
20 40 60 80
100 200 350 530
b
40
a
20
0 0
100
200
300
400
500
Quantity (tonnes: 000s)
600
700
800
Market supply of potatoes (monthly) 100
e
Supply d
Price (pence per kg)
80
P a 20 b 40 c 60 d 80 e 100
c
60
b
40
a
20
0 0
100
200
300
400
500
Quantity (tonnes: 000s)
600
700
800
Q 100 200 350 530 700
Demand and supply analysis
Shifts in the supply curve
Shifts in the supply curve P
O
S0
Q
Shifts in the supply curve P
S0
S1
Increase
O
Q
Shifts in the supply curve P
S2
Decrease
O
S0
S1
Increase
Q
Demand and supply analysis
Market equilibrium
Equilibrium price and output:
The Market Demand and Supply of Potatoes (Monthly)
The determination of market equilibrium (potatoes: monthly)
E
100
e
Price (pence per kg)
Supply d
D
80
Cc
60
b
40
B
a
20
A
Demand 0 0
100
200
300
400
500
Quantity (tonnes: 000s)
600
700
800
The determination of market equilibrium (potatoes: monthly)
E
100
e
Price (pence per kg)
Supply D
80
SURPLUS
d
(330 000) Cc
60
b
40
B
a
20
A
Demand 0 0
100
200
300
400
500
Quantity (tonnes: 000s)
600
700
800
The determination of market equilibrium (potatoes: monthly)
E
100
e
Price (pence per kg)
Supply d
D
80
Cc
60
b
40
SHORTAGE
B
(300 000) a
20
A
Demand 0 0
100
200
300
400
500
Quantity (tonnes: 000s)
600
700
800
The determination of market equilibrium (potatoes: monthly)
E
100
e
Price (pence per kg)
Supply d
D
80
60
b
40
B
a
20
A
Demand 0 0
100
200
300
Qe
400
500
Quantity (tonnes: 000s)
600
700
800
Demand and supply analysis
Effect of shift in the demand curve
Effect of a shift in the demand curve P
S
An increase in demand g Pe1
D1 O
Qe1
Q
Effect of a shift in the demand curve P
S
g Pe1
D1 O
Qe1
Q
Effect of a shift in the demand curve P
S
g Pe1
D2 D1 O
Qe1
Q
Effect of a shift in the demand curve P
S
i Pe2
g
h
Pe1
D2 D1 O
Qe1
Qe2
Q
Effect of a shift in the demand curve P
S
A decrease in demand g Pe1
D2 O
Qe1
D1 Q
Effect of a shift in the demand curve P
S
Pe1 Pe2
g
m n
D2 O
Qe2
Qe1
D1 Q
Demand and supply analysis
Effect of shift in the supply curve
Effect of a shift in the supply curve P
S1
A decrease in supply
g
Pe1
D O
Qe1
Q
Effect of a shift in the supply curve P
S1
g Pe1
D O
Qe1
Q
Effect of a shift in the supply curve P
S2 S1
g Pe1
D O
Qe1
Q
Effect of a shift in the supply curve P
S2 S1 k
Pe3
j
g
Pe1
D O
Qe3
Qe1
Q
Effect of a shift in the supply curve P
S1
An increase in supply
S2
g
Pe1
D O
Qe1
Q
Effect of a shift in the supply curve P
S1
g Pe1
S2
p q
Pe2
D O
Qe1 Qe2
Q
Demand and supply analysis
The price mechanism: effect of a rise in demand the goods market
The price mechanism: the effect of a rise in demand Goods Market Dg↑
shortage (Dg > Sg)
Pg↑
Sg↑ Dg↓
until Dg = Sg
Demand and supply analysis
The price mechanism: effect of a rise in demand factor markets
The price mechanism: the effect of a rise in demand Goods Market Dg↑
shortage (Dg > Sg)
Pg↑
Dg↓
Factor Market Sg↑
Df ↑
shortage (Df > Sf)
Sg↑
Pf ↑
until Dg = Sg
Sf ↑
until Df = Sf Df ↓
Demand and supply analysis
The demand curve
The demand curve:
The demand for potatoes (monthly)
Market demand for potatoes (monthly) Point Price Market demand (pence per kg) (tonnes 000s)
100
Price (pence per kg)
A
20
700
80
60
40
A
20
Demand 0 0
100
200
300 400 500 600 Quantity (tonnes: 000s)
700
800
Market demand for potatoes (monthly) Point Price Market demand (pence per kg) (tonnes 000s)
Price (pence per kg)
100
20 40
A B
80
700 500
60
B
40
A
20
Demand 0 0
100
200
300 400 500 600 Quantity (tonnes: 000s)
700
800
Market demand for potatoes (monthly) Point Price Market demand (pence per kg) (tonnes 000s)
Price (pence per kg)
100
20 40 60
A B C
80
700 500 350
C
60
B
40
A
20
Demand 0 0
100
200
300 400 500 600 Quantity (tonnes: 000s)
700
800
Market demand for potatoes (monthly) Point Price Market demand (pence per kg) (tonnes 000s)
Price (pence per kg)
100
D
80
C
60
20 40 60 80
A B C D
700 500 350 200
B
40
A
20
Demand 0 0
100
200
300 400 500 600 Quantity (tonnes: 000s)
700
800
Market demand for potatoes (monthly) 100
Price (pence per kg)
Point Price Market demand (pence per kg) (tonnes 000s)
E
D
80
C
60
20 40 60 80 100
A B C D E
700 500 350 200 100
B
40
A
20
Demand 0 0
100
200
300 400 500 600 Quantity (tonnes: 000s)
700
800
Demand and supply analysis
Shifts in the demand curve
An increase in demand
Price
P
D0 O
Q0
Q1 Quantity
D1
A decrease in demand
Price
P
D1 O
Q0
Q1 Quantity
D0
Demand and supply analysis
The supply curve
The supply curve: The supply of potatoes
(monthly)
Market supply of potatoes (monthly) 100
Supply P
Price (pence per kg)
80
a
20 100
60
40
a
20
0 0
100
200
300
400
500
Quantity (tonnes: 000s)
600
700
Q
800
Market supply of potatoes (monthly) 100
Supply P
Price (pence per kg)
80
a b
20 100 40 200
60
b
40
a
20
0 0
100
200
300
400
500
Quantity (tonnes: 000s)
600
700
Q
800
Market supply of potatoes (monthly) 100
Supply P
Price (pence per kg)
80
a b c
c
60
20 100 40 200 60 350
b
40
a
20
0 0
100
200
300
400
500
Quantity (tonnes: 000s)
600
700
Q
800
Market supply of potatoes (monthly) 100
Supply d
Price (pence per kg)
80
a b c d
c
60
P
Q
20 40 60 80
100 200 350 530
b
40
a
20
0 0
100
200
300
400
500
Quantity (tonnes: 000s)
600
700
800
Market supply of potatoes (monthly) 100
e
Supply d
Price (pence per kg)
80
P a 20 b 40 c 60 d 80 e 100
c
60
b
40
a
20
0 0
100
200
300
400
500
Quantity (tonnes: 000s)
600
700
800
Q 100 200 350 530 700
Demand and supply analysis
Shifts in the supply curve
Shifts in the supply curve P
O
S0
Q
Shifts in the supply curve P
S0
S1
Increase
O
Q
Shifts in the supply curve P
S2
Decrease
O
S0
S1
Increase
Q
Demand and supply analysis
Market equilibrium
Equilibrium price and output:
The Market Demand and Supply of Potatoes (Monthly)
The determination of market equilibrium (potatoes: monthly)
E
100
e
Price (pence per kg)
Supply d
D
80
Cc
60
b
40
B
a
20
A
Demand 0 0
100
200
300
400
500
Quantity (tonnes: 000s)
600
700
800
The determination of market equilibrium (potatoes: monthly)
E
100
e
Price (pence per kg)
Supply D
80
SURPLUS
d
(330 000) Cc
60
b
40
B
a
20
A
Demand 0 0
100
200
300
400
500
Quantity (tonnes: 000s)
600
700
800
The determination of market equilibrium (potatoes: monthly)
E
100
e
Price (pence per kg)
Supply d
D
80
Cc
60
b
40
SHORTAGE
B
(300 000) a
20
A
Demand 0 0
100
200
300
400
500
Quantity (tonnes: 000s)
600
700
800
The determination of market equilibrium (potatoes: monthly)
E
100
e
Price (pence per kg)
Supply d
D
80
60
b
40
B
a
20
A
Demand 0 0
100
200
300
Qe
400
500
Quantity (tonnes: 000s)
600
700
800
Demand and supply analysis
Effect of shift in the demand curve
Effect of a shift in the demand curve P
S
An increase in demand g Pe1
D1 O
Qe1
Q
Effect of a shift in the demand curve P
S
g Pe1
D1 O
Qe1
Q
Effect of a shift in the demand curve P
S
g Pe1
D2 D1 O
Qe1
Q
Effect of a shift in the demand curve P
S
i Pe2
g
h
Pe1
D2 D1 O
Qe1
Qe2
Q
Effect of a shift in the demand curve P
S
A decrease in demand g Pe1
D2 O
Qe1
D1 Q
Effect of a shift in the demand curve P
S
Pe1 Pe2
g
m n
D2 O
Qe2
Qe1
D1 Q
Demand and supply analysis
Effect of shift in the supply curve
Effect of a shift in the supply curve P
S1
A decrease in supply
g
Pe1
D O
Qe1
Q
Effect of a shift in the supply curve P
S1
g Pe1
D O
Qe1
Q
Effect of a shift in the supply curve P
S2 S1
g Pe1
D O
Qe1
Q
Effect of a shift in the supply curve P
S2 S1 k
Pe3
j
g
Pe1
D O
Qe3
Qe1
Q
Effect of a shift in the supply curve P
S1
An increase in supply
S2
g
Pe1
D O
Qe1
Q
Effect of a shift in the supply curve P
S1
g Pe1
S2
p q
Pe2
D O
Qe1 Qe2
Q
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