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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.
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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.
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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
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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
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