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FUNDEMENTALS OF ECONOMICS

FUNDEMENTALS OF ECONOMICS. By A A D Thilini Sapara Madu. IS 1007: Fundamentals of Economics Bachelor of in Information and Communication Technology BICT Degree Programme Year 1 University of Colombo School of Computing - UCSC Lecturer :Mrs. Saparamadu A A D T

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FUNDEMENTALS OF ECONOMICS

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  1. FUNDEMENTALS OF ECONOMICS By A A D Thilini SaparaMadu

  2. IS 1007: Fundamentals of Economics Bachelor of in Information and Communication Technology BICT Degree Programme Year 1 University of Colombo School of Computing - UCSC Lecturer :Mrs. Saparamadu A A D T Department of Business Economics Faculty of Management Studies and Commerce University of Sri Jayewardenepura A A D Thilini Saparamadu

  3. SESSION 02DEMAND, SUPPLY & EQUILIBRIUM

  4. THEORY OF DEMAND DEMAND Demand is a relationship indicating the quantity of a well-defined commodity that consumers are both willing and able to buy at each possible price during a given period of time, while other things remain constant (ceteris paribus) A A D Thilini Saparamadu

  5. THE DETERMINANTS OF QUANTITY DEMANDED • The price of the product • The price of other products • The consumer's income and wealth • Various “sociological” factors DEMAND FUNCTION The list of determinants of demand can be summarized in functional notation as; Qdx= f (Px, P1…….Pn-1, Y, S…..) A A D Thilini Saparamadu

  6. THE INDIVIDUAL’S DEMAND FOR A COMMODITY The relationship between the quantity of a commodity, that a consumer wishes to purchase per period of time and the price of that commodity, when other things being equal, is called individual demand. A A D Thilini Saparamadu

  7. THE DEMAND SCHEDULE Demand schedule is one way of showing the relationship between quantity demanded and the price. A A D Thilini Saparamadu

  8. DEMAND CURVE A graphical representation of the relationship between the product price and the quantity demanded is called the demand curve. A A D Thilini Saparamadu

  9. DEMAND AND PRICE • There is a negative relationship between the quantity demanded and the price of the commodity • Rationale : • Income effect • Substitute effect A A D Thilini Saparamadu

  10. THE MARKET DEMAND FOR A COMMODITY The market demand for a given commodity is the horizontal summation of the demands of the individual consumers in the market. A A D Thilini Saparamadu

  11. MARKET DEMAND CURVE A graphical representation of the relationship between the price and the market demand is called Market Demand Curve. A A D Thilini Saparamadu

  12. MARKET DEMAND FUNCTION Market Demand can be written in mathematical form: Qdx = f (Px, Py, N, Y, T,…..) Qdx = Quantity demanded Px = Price of X Py = Prices of other goods Y = Consumer income T = Consumer preference or taste N = Number of consumers in the market A A D Thilini Saparamadu

  13. 20 18 0 18 20 Quantity Demanded MOVEMENTS ALONG DEMAND CURVE • A movement downwards along a demand curve - Increase in the quantity demanded • A movement upwards along a demand curve - Decrease in the quantity demanded A A D Thilini Saparamadu

  14. SHIFTS IN THE DEMAND CURVE A Demand curve shifts , in response to a change in any of the determinants of demand. A rightward shift - Increase in demand A leftward shift -Decrease in demand A A D Thilini Saparamadu

  15. THEORY OF SUPPLY Supply indicates how much of the goods producers are, both willing and able to offer, for sale in a given time period at each possible price, while other conditions of supply are held constant. A A D Thilini Saparamadu

  16. THE DETERMINANTS OF SUPPLY The Price of the product and factors of production The goals of producing firms The state of technology Price expectations Changes resulting from nature Government policy

  17. SUPPLY FUNCTION The Supply function is a short-hand way of saying that quantity supplied depends on the variables listed on the right – hand side , while the form of the function determines the sign and magnitude of that dependence. Qsx = F (Px, Py,F1…..Fm..) A A D Thilini Saparamadu

  18. There is a positive relationship between the price of a commodity and its supply. Reasons : - willingness - Ability A A D Thilini Saparamadu

  19. SUPPLY SCHEDULE Supply can be expressed as a supply schedule. It shows the relationship between quantity supplied and the price . A A D Thilini Saparamadu

  20. SUPPLY CURVE Each market has a supply side as well as a demand side . The supply can be represented by a supply curve, which is the plot of the supply schedule on a graph. A A D Thilini Saparamadu

  21. MARKET SUPPLY Market supply is the sum of the amount supplied at each price by all the individual suppliers. A A D Thilini Saparamadu

  22. MOVEMENTS ALONG SUPPLY CURVE The result of a change in the price of the commodity . A movement down a supply curve - Decrease in the quantity supplied A movement up the supply curve - Increase in the quantity supplied A A D Thilini Saparamadu

  23. SHIFTS IN THE SUPPLY CURVE A Supply curve shifts to a new position in response to a change in any of the variables , that were held constant when original curve was drawn. These variables (factors) are called Shift Factors.(Price of production factors, level of technology …) . A rightward shift - Increase in Supply A leftward shift - Decrease in Supply A A D Thilini Saparamadu

  24. EQUILIBRIUM PRICE AND OUTPUT The quantity that consumers and producers are willing and able to sell is called equilibrium. A A D Thilini Saparamadu

  25. Equilibrium : Graphical Analysis A A D Thilini Saparamadu

  26. EQUILIBRIUM: Using Equations

  27. CHANGES IN THE EQUILIBRIUM Changes in the conditions of Demand and Supply Demand Shifts If the conditions of demand change, the demand curve shift either to the right or left side. A A D Thilini Saparamadu

  28. SUPPLY SHIFTS The equilibrium price and quantity may be altered by a change in supply . If the price of relevant resources (cost of production), technology and the number of producers or the price of related products change , supply changes. A A D Thilini Saparamadu

  29. END OF SESSION 02 A A D Thilini Saparamadu

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