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DEMAND AND SUPPLY

This article provides an analysis of demand for maize, including demand schedule, demand curve, and demand function. It also discusses the factors affecting demand, such as price, income, prices of related goods, and consumer preferences. Additionally, it explains the distinction between a change in quantity demanded and a change in demand, and illustrates the effect of changes in income on demand.

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DEMAND AND SUPPLY

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  1. DEMAND AND SUPPLY

  2. Demand Analysis • Demand refers to the quantity of a good (commodity or service) that consumers are willing to purchase (buy) at each price per unit of time in a given market, other things being equal (ceteris paribus). • Demand is a relationship between quantity purchased and price

  3. Demand Analysis Demand represented as • Demand Schedule (Tabular) • Demand Curve (Graph) • Demand Function (Equation)

  4. Law of Demand The quantity of a commodity demanded increases as its own price falls, other things being equal. Or The quantity of a commodity demanded falls as its own price increases, other things being equal.

  5. Law of Demand • There is a negative or inverse relationship between price and quantity demanded. • This inverse relationship is called the law of demand.

  6. DEMAND SCHEDULE: MAIZE DEMAND BY A HOUSEHOLD

  7. DEMAND CURVE FOR MAIZE Price ₵/bag D 100 80 60 40 20 D 0 5 10 15 20 25 30 Quantity bags/month

  8. MARKET DEMAND The market demand for a commodity is the sum of individual household demand at each price. Assuming there are just 3 buyers in a market, each demanding the following quantities at various possible prices. The market demand is the sum of the individual demands.

  9. MARKET DEMAND FOR MAIZE, THREE BUYERS

  10. Demand Function Pi Own price maize Pi Qi substitutes rice Pr bread Pi Qi complements butter/margarine normal good Y Q Y inferior good Y Q

  11. Factors Affecting Demand • Own price of the commodity • Income of consumers • Prices of related commodities • Size of the population/number of consumers in the market • Taste or preferences of consumers • Consumer expectations about future prices and incomes NB- to examine the effect of each factor on the demand for a particular commodity, all the other factors affecting demand must be held or assumed constant.

  12. Factors Affecting Demand Distinction between: • Change in quantity demanded: a movement along the demand curve • Change in Demand: a shift in the demand curve. • Apart from a commodity’s own price all other factors affecting demand are known as shift factors (demand shifters).

  13. Price D The movement from point ‘a’ to point ‘b’ when the price changes from P0 to P1 is a change in quantity demanded of the commodity(from q0 to q1). A reverse movement is also a change in quantity demanded. a P0 P1 b D 0 q0 q1 Quantity

  14. Change in Demand • Is a change in the demand schedule data; or graphically, a shift in the location of the demand curve. • A Change in the level of any of the demand shift factors (demand shifters) causes the demand curve to shift (either upwards to the right or downwards to the left). • Therefore, a change in demand is caused by changes in the level of any demand shifters but not by the own price of the commodity. • Illustrate effect of changes in income on demand

  15. An upward shift of a demand curve to the right represents an increase in demand while a downward shift to the left represents a decrease in demand. Fig. Changes in Demand D1 Price D0 D2 P0 D1 D0 D2 0 q2 q0 q1 quantity

  16. Change in Demand In the figure, the shift in the original demand curve D0D0 to either D1D1, or D2D2 represents a change in demand. The upward shift of the demand curve from D0D0 to D1D1 is an increase in demand. The downward shift from D0D0 to D2D2 represents a decrease in demand. Note that the own price (P) does not change.

  17. Discussion of Factors affecting Demand Income • Commodities whose demand varies directly with income are called superior or normal goods. • Commodities whose demand varies inversely with a change in income are called inferior goods. e.g. Rising income may decrease demand for used clothing, third hand automobiles, certain foods (e.g gari).

  18. Discussion of Factors affecting Demand Prices of Related Goods • A substitute is a good which can be used in place of another good. Butter and margarine are examples of substitute goods. • When two products are substitutes the price of one good and the demand for the other good are directly related. • A complement is a good used in conjunction with another good. They are jointly used. • When two commodities are complements, the price of one good and the demand for the other are inversely related.

  19. Discussion of Factors affecting Demand Taste or preferences • A change in taste or preferences in favor of a commodity increase the demand while unfavorable change in taste will decrease the demand. Number of buyers An increase (decrease) increased (decreases) dd.

  20. Summary: An increase in demand can be caused by; • A favorable change in consumer tastes. • An increase in the number of buyers. • Rising incomes if the product is a normal good. • Falling incomes if the product is an inferior good. • An increase in the price of a substitute good. • A decrease in the price of a complementary good. • Consumer expectations of higher future prices (and incomes).

  21. Supply Analysis • Supply Is the quantity of a particular commodity or service that producers are willing to offer or put on the market for sale at each price per unit of time, ceteris paribus.

  22. Law of Supply • Law of Supply: the quantity supplied of a commodity per unit of time increases with its price, ceteris paribus. • There is a positive or direct relationship between price and quantity supplied. • As price rises, the corresponding quantity supplied rises. • As price falls the quantity supplied also falls.

  23. Supply Schedule Supply Schedule Is a list of possible prices and their respective quantities of a commodity offered for sale (supplied)

  24. A SUPPLY SCHEDULE FOR A COMMODITY

  25. A FARMER’S SUPPLY CURVE FOR MAIZE Price (₵ /bag) 100 S 80 60 40 S 20 5 10 15 20 25 30 Quantity (bags/month

  26. Supply Function Factors Affecting Supply - the commodity’s own price • Prices of other goods • Prices of factor inputs(resources) • Type of technology used (technique of production) • Number of producers • Future price expectation of producers • Natural factors (such as weather (rainfall), bushfires, pests and diseases outbreak.

  27. Change in Quantity Supplied and Change in Supply A Change in Quantity Supplied Is a movement along a given supply curve. Changes in the commodity’s own price leads to a change in quantity supplied of a commodity but not a change in supply. S Price b P1 a P0 S Quantity q0 q1

  28. A Change in Supply • Is a shift of a supply curve • It means the entire supply curve shifts • An increase in supply shifts the curve downwards or outward to the right • A decrease in supply shifts the curve upwards or inwards to the left • Apart from the commodity’s own price, all the other factors of supply are known as shift factors (shifters). • A change in the level of any of the shift factors will causes the supply curve to shift

  29. Price S2 S0 • The shift in the original supply curve from S0S0 downwards to S1S1 is an increase in supply from q0 to q1 at the same own price P0. S1 P0 S2 S0 S1 0 q2 q0 q1 Quantity

  30. FACTORS EFFECT Increase in Supply can be caused by any of the following • Decrease in price of other commodities produced with the same/similar inputs. • Decrease in price of input (cost of production). • Used of improved or modern technology in farm production. • Increase(larger) in number of producers/suppliers. • Favourable weather conditions( ie. Good and adequate rainfall).

  31. Decrease in supply can be caused by • Increase in price of other commodities produced with the same/similar inputs. • Increase in price of input (cost of production). • Use of primitive or traditional production methods. • Decrease/smaller number of producer/supplier. • Unfavourable factors (e.g. Flooding, drought, bushfires, pest and diseases outbreak).

  32. Market Equilibrium • The market equilibrium occurs when at a certain price, quantity demanded is equal to quantity supplied • Market clears. • Equilibrium price: Also known as market clearing price, is the price at which the quantity demanded is equal to the quantity supplied. • Equilibrium quantity: is the quantity exchanged at the equilibrium price.

  33. P D S EXCESS SUPPLY (SURPLUS) E PE EXCESS DEMAND (SHORTAGE) S D qE Q

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