DEMAND AND SUPPLY
WEEK FOUR
DEMAND AND SUPPLY
CONTENT
- Change in Quantity Demanded
- Change in Demand
- Change in Quantity Supplied
- Change in Supply
- Effects of change in demand and supply on equilibrium price and quant
CHANGE IN QUANTITY DEMANDED
A change in quantity demanded, is otherwise known as movement along a particular demand curve that is only influenced by price. When there is a change in the quantity demanded, the demand curve does not shift. This is because the price of the commodity is the only cause of a change in the quantity demanded while other factors remain unchanged.
Y Price
D
10
5
D
x
0 20 30
Quantity
Change in Quantity Demanded
From the above diagram, as the price falls from #50 to #30, the quantity demanded increases from 60 to 80 units,
Hence movement along the same demand curve took place from A to B.
Further decrease or increase in price will also affect the movement along the same
demand curve.
CHANGES IN DEMAND
When different quantities of goods and services are demanded at a particular price, it is called a change in demand. It is caused by those factors that generally affect the demand of a commodity other than the price of the commodity; For example changes in taste and fashion, changes in income etc Change in demand shows a shift of the demand curve to an entirely new position. A shift of the demand curve to the right is termed an increase in demand while a shift of the demand curve to the left is a decrease in demand.
Price
D2
D1
D2
D1
Q1 Q2
Quantity
- Increase in Demand
D1 D2
Price
N10
Q1 Q2
Quantity
(ii) Decrease in Demand
EVALUTION
- State three factors responsible for the change in demand.
- What is change in quantity demand?
CHANGES IN QUANTITY SUPPLIED
Change in quantity supplied is only influenced by price. It involves movement along the same supply curve
y
Price S
P2
P1
S
x
Q1 Q2
Quantity
Change in Quantity Supplied
CHANGE IN SUPPLY
Change in supply is caused by factors other than the price of the commodity. It involves a bodily shift of the supply curve either to the right (increase in supply) or to the left
(decrease in supply
Price Price
P
Q2 Q0 Qty
Qo Q1 Qty (ii) Decrease in supply
(i)Increase in supply
EVALUATION
- What is change in quantity supplied?
- State the factors responsible for change in supply.
EFFECTS OF CHANGES IN DEMAND AND SUPPLY ON EQUILIBRIUM PRICE AND QUANTITY
Changes in demand and supply lead to a change in the equilibrium price. Once there is any change in either demand or supply, the initial equilibrium will be disrupted and a new equilibrium will be created. The market equilibrium price can be affected in the following ways.
- Increase in Demand
Price
D2
S
D1
P2
P1
S D2
D1
Q1 Q2 Quantity
Effects of increase in demand
- Increase in the equilibrium price from P1to P2
- Increase in the equilibrium quantity from Q1 toQ2
- Decrease in Demand
Price
D2
P1
P2
S D1
D2
Q2 Q1 Qty
Effects of Decrease in Demand
- Decrease in the equilibrium price from P1 to P2
- Decrease in the equilibrium quantity from Q1to Q2
- Increase in Supply
S1 S2
Price
P1
P2
S1 D
S2
Q1 Q2
Quantity
Effects of Increase in Supply
- Decrease in the equilibrium price from P1 to P2
- Increase in the equilibrium quantity from Q1to Q2
- Decrease in supply
Price
P2
S2
P1
S1
Q2 Q1
Quantity
Effects of Decrease in Supply
- Increase in the equilibrium price from P1 to P2
- Decrease in the equilibrium quantity from Q1to Q2
EVALUATION QUESTION
- What is the equilibrium quantity?
- Illustrate with a diagrammatic sketch the market situation at a price lower than the equilibrium price”
- Explain with the aid of diagrams how the market equilibrium price is affected by the combined effects of:
- Increase in demand and increase in supply.
Decrease in demand and decrease in supply.
- Increase in demand and decrease in supply.
READING ASSIGNMENT
Amplified and Simplified Economic for SSS by Femi Longe page 290–296
Fundamentals of Economics by Anyawuocha page 166-168
GENERAL EVALUATION QUESTIONS
- Distinguish between fixed cost and variable cost.
- Under what condition will a perfectly competitive firm maximize profit.
- Describe each of the following;
(a) abnormal demand ( b) Effective demand
- What is a public corporation.
- Explain the causes of a declining population.
WEEKEND ASSIGNMENT
- At the equilibrium price, quantity demanded is (a) greater than quantity supplied (b) equal to quantity supplied (c) less than quantity supplied (d) equal to excess supply
- If the government fixes a price of a commodity above the equilibrium price, the quantity supplied will be (a) less than the quantity demanded (b) equal to the quantity demanded (c) greater than the quantity demanded (d) equal to zero
- The market price of a commodity is normally determined by the (a) law of demand (b) interaction of the forces of demand and supply (c) total number of people in the market (d) total quantity of the commodity in the market
- The gap between demand and supply curves below the equilibrium price indicates (a) excess demand (b) excess supply (c) equilibrium quantity (d) equilibrium price
- If prices fall below the equilibrium (a) demand will equal supply (b) demand will be greater than supply (c) supply will be greater than demand (d) quantity supplied will be zero
SECTION B
- Given the demand and supply function for a crate of eggs as follows:
Qd = 12 –2p; Q = 3+1p
Determine the equilibrium price and quantity
- What is the excess supply at the price of N3.50?