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# Demand, Supply and Price (Part 2) - PowerPoint PPT Presentation

D2. P. D1. S1. P2. P1. Q. Q1. Q2. 0. Demand, Supply and Price (Part 2). I. Increase in Demand. P (\$). Original Qd. New Qd. 6. 3. 6. 7. 8. 9. 5. 4. 4. 5. 3. 6. Increase in demand means quantities demanded increase at all prices.

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P

D1

S1

P2

P1

Q

Q1

Q2

0

Demand, Supply and Price (Part 2)

I. Increase in Demand

Original Qd

New Qd

6

3

6

7

8

9

5

4

4

5

3

6

Increase in demand means quantities demanded increase at all prices.

Quantities demanded increase by 3 units at all prices.

Be careful:

Increase in demand  increase in quantity demanded

D2

P

D1

S1

P2

P1

Q

Q2

Q1

0

When demand increases, the demand curve will shift to the _____ from D1 to D2. The equilibrium price will _______ from P1 to P2 and the equilibrium quantity will

_______ from Q1 to Q2.

right

increase

increase

D3

S1

P4

D4

Q

P3

Q4

0

Q3

When demand decreases, the demand curve will shift to the ____ from D3 to D4. The equilibrium price will ________ from P3 to P4 and the equilibrium quantity will ________ from Q3 to Q4.

left

decrease

decrease

Shift of the entire demand curve.

D

P, Q

Qd

P, Q

Qd

P, Q

D

P, Q

Qd

Qd

P

P

Cause and Effect

D

D

P

P

It is wrong to say that:

1. Consumers’ income

a. Superior goods (normal goods)

income   demand 

income   demand 

e.g. PSP, Levi’s jeans...

b. Inferior goods

income   demand 

income   demand 

e.g. instant noodles, bread...

II. Factors affecting demand (con’t)

2. Prices of related goods

a. Substitutes (competitive demand)

e.g. Coca Cola and Pepsi

P of Coca Cola 

 demand for Pepsi, v.v.

b. Complements (joint demand)

e.g. digital cameras and storage media

P of digital cameras 

 demand for storage media , v.v.

3. Number of buyers

Immigrants   demand for housing 

No. of elders   demand for medical

services 

4. Demand for resources/factors

(derived demand)

• Demand for housing 

• demand for construction

workers and steel 

D1

S1

S2

P1

P2

Q

Q1

0

Q2

III. Increase in Supply

When supply increases, the supply curve will shift to the _____ from S1 to S2. The equilibrium price will ________ from P1 to P2 but the equilibrium quantity will ________ from Q1 to Q2.

right

decrease

increase

S4

D1

S3

P4

P3

Q

Q4

Q3

0

IV. Decrease in Supply

When supply decreases, the supply curve will shift to the ____ from S3 to S4. The equilibrium price will ________ from P3 to P4 but the equilibrium quantity will ________ from Q3 to Q4.

left

increase

decrease

Shift of the entire supply curve.

S

P, Q

Qs

P, Q

Qs

P, Q

S

P, Q

Qs

Qs

P

P

Cause and Effect

S

S

P

P

It is wrong to say that:

1. Cost of production

a. production cost   supply ; v.v.

b. per-unit tax supply 

c. per-unit subsidy  supply 

Be careful:

 supply curve will shift down (to the right)

S

S

 supply curve will shift up (to the left)

2. Prices of related goods

a. Competitive supply

e.g. residential flats

and cultural amenities

P of flats   supply of amenities , v.v.

b. Joint supply

e.g. chicken legs and wings

P of chicken legs 

 supply of wings ; v.v.

3. Number of sellers

Number of firm   supply ; v.v.

4. State of technology

Technological progress  supply 

PARKnSHOP CYBERSTORE

D2

P

P

D1

D1

S1

S1

S2

P2

P1

P1

P2

Q

Q

Q2

Q1

Q1

Q2

0

0

P, Q

P, Q

VI. Change in Demand and Supply

at the same time

D

S

Por , Q

D2

P2

P

P1

D1

S1

S2

Q2

P, Q

Q

Q1

0

a. increase in demand > increase in supply

D2

P

P1

D1

S1

S2

P2

Q2

P, Q

Q

Q1

0

b. increase in demand < increase in supply

D2

P

P1

D1

S1

P2=

S2

Q2

P doesn’t change, Q 

Q

Q1

0

c. increase in demand = increase in supply

P, Q

P, Q

P, Q

P, Q

P, Q

P, Q

P, Q

P, Q

P, same Q

same P , Q

same P , Q

P, same Q

D

D

D

S

S

S

Cause and Effect

>

=

<

D

S

>

=

<

>

=

<

>

=

<

(Part 2)

The End