The Demand Schedule
+A demand schedule shows the relationship between the quantity demanded and the price of a commodity, other things held constant. Such a demand schedule, depicted graphically by a demand curve, holds constant other things like family incomes, tastes, and the prices of other goods. Almost all commodities obey the law of downward-sloping demand, which holds that quantity demanded falls as a good's price rises. This law is represented by a downward-sloping demand curve.
+Many influences lie behind the demand schedule for the market as a whole: average family incomes, population, the prices of related goods, tastes, and special influences. When these influences change, the demand curve will shift.
The Supply Schedule.
+The supply schedule (or supply curve) gives the relationship between the quantity of a good that producers desire to sell - other things constant - and that good's price. Quantity supplied generally responds positively to price, so the supply curve is upward-sloping.
+ Elements other than the good's price affect its supply. The most important influence is the commodity's production cost, determined by the state of technology and by input prices. Other elements in supply include the prices of related goods, government policies, and special influences.
The Demand Curve
o The graphical representation of the demand schedule is the “demand curve”.
o In the demand curve , the quantity demanded is put on to the horizontal axis and the price (P) on the vertical axis.
o In the curve the price and the quantity are inversely related. That is, Q goes up when P goes down.
o The curve slopes downward, going from northeast to southwest. This important property is called “The law of down warding–slopping demand”.
Forces behind the Demand curve:
There are some factors that determines or influences the demand at a given price.
i. The average income of the consumers
ii. The size of the market
iii. The prices and the availability of then related goods
iv. Consumer’s tastes or preferences
v. Specials influences
Market Demand
o The fundamental building block for demand is individual preferences.
o Market demand represents the sum of all individual demands.
q Market demand curve can be found by adding together the quantities demanded by all individuals at each price in a given period of time.
q Market demand also follows the law of downward sloping demand. For example, lower prices attract new customers through the substitution effect. In addition, a price reduction will induce extra purchase of goods by existing consumers through both the income and the substitution effects. Conversely, a rise in the price of a good will cause some of the consumers to buy less.
Forces behind Demand curve/Reasons of shift of Demand curve:
o Average income of consumer increases(+)= increase in demand, buy more
o Size of market increases(+)=increase in demand, buy more
o Prices of related / substitutes increases (+) = increase in demand, buy more
o Tastes improves= if favorable change in tastes occurs, increase in demand, buy more
o Special influences = seasons, taxes, etc
Shift of Demand Curve
o When one of the other determinants changes, a whole new demand curve is constructed, that is the curve shifts.
o A shift in demand curve is referred to as change in demand curve.
o If a change in one of the other determinants causes demand to rise-say, income rises, the whole curve will shift to the right. At each price, more will be demanded than before.
The Supply schedule
o Supply: The amount of a particular economic good or service that a producer or group of producers will want to produce and supply at a given price over a given period of time.
o Supply schedule: The relationship between price and quantity supplied is called supply schedule.
Forces behind the supply curve:
o The fundamental point to grasps that producers supply commodities for profit and not for fun or charity. There are some major elements that forces the supply curve to determine.
i. Cost of production
ii. Prices of inputs
iii. Prices of related goods
iv. Technological advances
v. Government policies
vi. Special influences
i. Cost of production-
When production costs for a good are low relative to the market price, it is profitable for the producers to supply in a great deal.
When production cost are high relative to price ,firms produce little, switch to the production of other products and may simply go out of the business.
ii. Prices of inputs-
If the prices of the inputs such as- labor, energy or machinery has increased that will have an influence on the cost of producing the given level of output, thus increases their production cost and lowered their supply.
iii. Prices of related goods-
If the prices of one production substitute rises, the supply of another substitute will decrease. If there is more demand for one particular product, and its prices rises, the producers will switch more of making that product, and the supply of other product will fall.
iii. 4. Technological advances-
It consist of changes that lower the quantity of inputs needed to produce the same quantity of output. Such advances include everything from scientific breakthrough to better applicant existing technology.
iv. 5. Government policies-
Environmental and health considerations determine what technologies can be used while taxes and minimum-wage laws can significantly raise the input prices. Government's trade policies will also have a positive impact on the free-trade economy.
v. 6. Special influences- It will also has an effect on the supply curve.
Ø The weather
Ø Market structure
Ø Expectations about future market price etc.
Equilibrium of supply and demand:
q The market equilibrium comes that price and quantity where the forces of supply and demand are balanced.
o At the equilibrium price, amount that buyers want to buy is just equal to the amount that sellers want to sell.
o When the forces of supply and demand are in balance, there is no reason for price to rise or fall as long as other things remain unchanged.
o Market clearing price: price at which quantity demanded = quantity supplied. This denotes that all supply and demand orders are filled, the books are “cleared” of orders , and demanders and suppliers are satisfied.
n Surplus- When quantity supplied has exceeds the quantity demanded.
n Shortage-When the market quantity demanded has exceeds the quantity supplied.
n Equilibrium point- The equilibrium price and quantity come when the amount willingly supplied equals the amount willingly demanded. In a competitive market, this equilibrium is found at the intersection of supply and demand curves. There are no shortages and surpluses at the equilibrium price.
Effect of a shift in supply or demand:
o Supply an demand can also be used to predict the impact of changes in economic conditions on prices and quantities.
o Case:
n Input price increases
n Supply curve shifts to the left as supply will decline
n The result is a shortage of goods as compared to demand
n Price increase and quantity demanded declines
n A new equilibrium point will be identified
n Net effect: shift of supply curve and movement along the demand curve.