HOW DEMAND AND SUPPLY OPERATE IN COMPETITIVE MARKETS FOR INDIVIDUAL COMMODITY ? DEMAND SCHEDULE:- There exists a definite relationship between the market.

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Presentation transcript:

HOW DEMAND AND SUPPLY OPERATE IN COMPETITIVE MARKETS FOR INDIVIDUAL COMMODITY ? DEMAND SCHEDULE:- There exists a definite relationship between the market price of a good and the quantity demanded of that good, other things held constant. This relationship between price and quantity bought is called demand schedule, or the demand curve.

A Hypothetical Demand Schedule for Corn At each market price, consumers will want to buy a certain quantity of corn. As price falls, quantity of corn demand increase. ScenarioPrice Quantity demanded A260 B440 C630 D825 E1023

The Demand Curve Price Quantity D D A B C D E Note of Causation: quantity demanded Vs. demand. Here we’ve discussed about relationship between price and quantity demanded but not demand.

Difference between quantity demanded and demand Quantity demanded rely on price only other thing remain same ( ceteris paribus). On the otherhand, demand depend on many other things such as income, choice preference, price of related goods etc. Here change of demand means change demand curve to the right or left; on the otherhand change of quantity demanded means change of quantity on the same demand curve.

Example of change in quantity demanded vs. change in demand Change in quantity demanded Change in demand

An inverse relationship exists between the price of a good and the quantity demanded in a given time period, ceteris paribus. If price goes up, quantity demanded goes down and vice versa. Law of demand:- Change in price, income, population or preference If price of related goods, personal income, preference change what happens to price and quantity demanded relationship?

Change in demand curve If the other things, that is, determinants of demand other than price such as consumers’ tastes and preferences, income, prices of the related goods change, the whole demand curve will change.

Price D A B C D E D1 D2 If income/price of related goods goes up or down demand changes in any price point. Quantity

Tastes and preferences Example : Effect of advertisement If there is ad on any media about any product, demand may goes up i.e. shift to the right at any price point.

How the demand of some goods goes down when income goes up. IRRI riceNagirsha rice Quantity P P Inferior goods Normal goods It is a matter of quality of goods.

Income and demand: normal goods A good is a normal good if an increase in income results in an increase in the demand for the good.

Determinants of demand tastes and preferences prices of related goods and services income number of consumers expectations of future prices and income

A hypothetical supply schedule for rice ScenarioPrice /kgQuantity supplied A518 B416 C312 D27 E10 A B C D E P Quantity The supply schedule for rice shows the relationship between its market price and the amount of that commodity that producers are willing to produce and sell, other thing remaining same.

Law of supply A direct relationship exists between the price of a good and the quantity supplied in a given time period, ceteris paribus. Elements determining supply:- (1)The good’s own price (2)Technology (3)Input prices (4)Price of related goods (5)Market organization (6)Special influences

Change in supply vs. change in quantity supplied Change in supplyChange in quantity supplied

Equilibrium of Supply & Demand When demand and supply operate through the market and meet each other they generate equilibrium price and quantity. At the equilibrium price, there is no tendency for price to rise or fall, and there is no stockpiles of goods.

Table for equilibrium analysis Scenario Price (Tk)Quantity demanded Quantity supplied State of market Pressure on price A5918 SurplusDownward B41016 SurplusDownward C312 Equilibriu m Neutral D2157 ShortageUpward E1200 ShortageUpward

0 Quantity Price D S DD > SS Equilibrium M P Market Equilibrium S > D

Quiz for discussion YearMoney SupplyGNP (c ) Consider the following Table and plot the relationship on a diagram. (a) A decrease in demand generally__________ price and _________quantity demanded. (b) A decrease in supply generally__________ price and _________quantity SUPPLIED.