DEMAND, SUPPLY AND MARKET

EQUILIBRIUM
DEMAND
- Is the schedule of various quantities
of goods and services which buyers
are willing and able to purchase at a
given price, time and place all other
factors are held constant(ceteris
paribus)
LAW OF DEMAND
 As the Price increases, the quantity
demanded decreases; and as the price
decreases, the quantity demanded
increases.
 P Qd
 P Qd
Various factors affecting demand
1.Price of the product
2.Income of the buyers
3.Quality of the product
4.Season
5.Price expectation
6.Number of consumers/ population
7.Tastes and preferences
8.Promotion and advertisement
9.Religioun
10.Price related products
11.Fashion/fad
12.Customs and traditions
Demand schedule
Is a listing of the different
quantities of goods and
services that the buyers will
produce given the various
alternative price.
Example:
Table 1. Demand Schedule for Commodity X

PRICE OF X( Px) Quantity demanded for

commodity X(Qdx )
 A demand function is expressed in this form:
Qdx = f(Px)
Where: Qdx – quantity demanded for commodity X
Px - price of commodity X
While demand equation is presented as follows:
Qdx= a-bPx
Where: a- intercept
b-slope(the formula: change in quantity/ change in Price)
Example: Qdx= 20- 0.4 Px
Movement along a given demand
curve is the change in the quantity
demanded due to the change in the
price of the product when all other
factors are held constant.
 A change(or shift) in demand refers to
the shift in the entire demand schedule
due to the changes in some factors that
were held constant like income, price
of related products, population and
others.
Demand schedule (table 2)
Price Qd1 Qd2
5 18 36
10 16 32
15 14 28
20 12 24
25 10 20
30 8 16
35 6 12
40 4 8
Price
Market demand curve is the total
demand obtained by taking the
horizontal summation of all
individual demand curves of the
consumers in the market.
Demand schedule(table 3)
Price Consu Consu Consu Total
mer A mer B mer C deman
d
15 5 10 2 17
14 8 13 4 25
13 11 16 6 33
12 14 19 8 41
11 17 22 10 49
10 20 25 12 57
Price
SUPPLY
- Is the schedule of various
quantities of goods and services
which sellers are willing and able
to sell at a given price, time,
place, all other factors are held
constant(ceteris paribus)
LAW OF SUPPLY
- States that as the price increases,
the quantity supplied also
increases, and as the price
decreases, the quantity supplied
also decreases, ceteris paribus.
Factors affecting Supply
1. Price of the product
2. Cost of production
3. Availability of raw materials
4. Technology
5. Number of sellers
6. Price expectations
7. Taxes and subsidies
8. Prices of other products
Supply schedule
- Is a listing of the different
quantities of goods and
services that sellers will sell
given the various alternative
prices.
Example: Supply schedule for Commodity X

Price of X (Px) Quantity demanded for commodity

X(Qs)
10 1
20 2
30 3
40 4
50 5
60 6
70 7
80 8
Price
90
80
70
60
50
40
30
20
10
0 0 1 2 3 4 5 6 7 8 9
Quantity Supplied( Supply curve)
Supply function:
Qsx = f(Px)
Where:Qs –quantiry supplied for commodity X
Px – price of commodity X
Supply equation: Qsx= a+bPx
Where: a - intercept
b – slope (the formula: change in quantity/
change in price
Example: Qsx = -10+ 0.6Px
 Interpretation of the intercept and slope
a= -10 the intercept means that if the price of commodity
x is zero, the seller will sell -10 units of the commodity. A
negative quantity is nothing. This only emphasizes that if
there is no price, the seller will sell nothing.
b= 0.6 the slope means that for every one unit change in
the price of X, the quantity supplied will change by 0.6
unit
The positive sign signifies a positive relationship
between the price and the quantity supplied.
Calculate the quantity supplied assuming the following Prices:
1. P= 20
2. P= 30
3. P= 40