Supply and Demand

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Supply and Demand
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Supply and Demand

• What is supply?

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Supply and Demand
?Supply- quantity of a product or service that
sellers are willing and able to provide the
market at a given price
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Supply and Demand

• Importance of understanding supply

?For better understanding of changing
prices ?Supply influences price
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Supply and Demand

• Causes for changes in supply

?Changes in production costs ?Prices of related
goods ?Number of sellers in the market ?Future
expectations of price ?Past performances of price
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Supply and Demand

• Law of Supply

?Relationship between product supply and price
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Supply and Demand
Supply is not just a single product at a single
price!
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Supply and Demand

• What is demand?

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Supply and Demand
?Demand- quantity of a product or service that
buyers are able and willing to purchase from the
market at a single price
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Supply and Demand

• Factors influencing demand

?Changes in personal income ?Prices of related
goods ?Number of buyers in the market ?Future
expectations of price ?Past performances of price
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Supply and Demand

• Law of Demand

?Low prices More buyers ?High Prices Fewer
buyers
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Supply and Demand

• Establishing Price

Through supply and demand price can be
established.
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Supply and Demand

• Equilibrium price

Definition quantity supplied equals quantity
demanded
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Supply and Demand
Equilibrium pricemarket price
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Supply and Demand
?Complementary ?Supplementary ?Elastic vs.
Inelastic
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Supply and Demand

• Complementary - Definition

?If an increase in the price of one product
decreases the consumption of another
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Supply and Demand

• Complementary

?Products that are eaten and/or promoted
together ?Examples ham and eggs, lettuce and
salad dressing
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Supply and Demand

• What is Supplementary?

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Supply and Demand

• Supplementary - Definition

?A product that does not compete with another
product
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Supply and Demand

• Supplementary - Definition

?Products that do not compete with other
products ?Examples sheep and wheat production
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Supply and Demand

• What is Elastic and Inelastic?

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Supply and Demand

• Elastic - Definition

?Demand of a product whose use is not directed by
necessity or habit, therefore has several
substitutes
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Supply and Demand

• Elastic

?Causes consumers to be more cautious of price
changes ?Examples T-bone steaks
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Supply and Demand

• So what is Inelastic?

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Supply and Demand

• Inelastic - Definition

?Products that have a necessity and very few
substitutes
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Supply and Demand

• Inelastic

?Consumers must have these items and are
insensitive to price changes ?Examples bread,
milk
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...and were done!