The relationship between the market price of a good and the quantity demanded of that good, other things held constant.

Transcription

1 1 DEMAND AND SUPPY

2 DEMAND Demand Curve The relationship between the market price of a good and the quantity demanded of that good, other things held constant. Effective Demand - Quantity of a good or service that consumers are actually buying at the current market price. - Aggregate actual demand in an economy supported by the consumers' capacity to pay. 2

3 LAW OF DEMAND As the price of a product increases, quantity demanded falls; likewise, as the price of a product decreases, quantity demanded increases. When the price of a commodity is raised (and other things are held constant), buyers tend to buy less of the commodity. When the price is lowered, other things being contant, quantity demanded increases. 3

4 Price Demand Curve TABEL Price (Rp) Quantity (Unit) A 10 1 B 9 2 C 8 5 D E A B C C D E D Quantity 4

5 Quantity demanded tends to fall as price rises for 2 reasons : 1. Income effect when a price goes up, I find myself somewhat poorer than I was before. If gasoline price double, I have in effect less real income, so I will naaturally curb my consumption of gasoline and other goods. 2. Substitution effect which occurs because a good becomes relatively more expensive when its price rises. When the price of good A rise, I will generally substitute goods B, C, D,...for it. 5

6 Assumptions : Habits, tastes and fashions remain same. Income level should remain constant The function shows the relationship between Price and Quantity Demanded at a static time (t). Income of the consumer does not change. Prices of related goods remain constant. Number of buyers remain constant. The commodity is a normal good and has no prestige or status value. People do not expect changes in the price. Price is independent and quantity demanded is dependent. 6

7 Shift in Demand : 1. Shift in Curves Which denoted a shift of the demand curve. The effect of rising average income or increased population or lower prices of related goods. Permintaan D1 D2 D3 P 0 Q1 Q2 Q3 Jumlah 7

8 Shift in Demand : 2. Movements along curves Which means moving along, or moving to a different point, on the same demand curve after a price change. Harga D P P1 D 0 Q Q1 Jumlah 8

9 Factors affecting the demand curve : Average income As people s income rise, individuals tend to buy more of almost everything, even it prices don t change. Tastes Tastes represent a variety of cultural and historical influences. Prices and availabilty of related goods Lower gasoline prices raise the demand for cars. Special influences Include availability of alternative forms of transportation, safety of automobiles, expectations of future price increases. Population A growth in population increases car purchases. 9

10 Supply Supply Curve The relationship between its market price and the amount of that commodity that producers are willing to produce and sell, other things held constant. A smooth curve is give the upward-sloping supply curve. 10

11 Law of Supply When the price offered is raised (and other things are held constant), seller tend to sell more of the commodity. When the offered is lowered, other things being contant, quantity supplied decreases. 11

12 Price Supply Curve Price (Rp) TABLE Quantity (Unit) A 5 20 B 4 16 C 3 12 D E E D C B A S Quantity 12

13 Factors affecting the supply curve : 1. Input prices. A reduction in the wage paid to autoworkers lowers production costs and increases supply 2. Prices of related goods. If truck prices fall, the supply of cars rises. 3. Technology. Computerized manufacturing lowers production costs and increases supply. 4. Government policy Removing quotas and tariffs on imported automobils increases total automobile supply. 5. Special influences Internet shopping and auctions allow consumers to compare the prices of different dealers more easily and drives high-cost sellers out of business. 13

14 Assumptions : 1. Process of inputs and technological advances. 2. Input price should remain contant. 3. Time. 14

15 ELASTICITY Is the responsiveness of one variable to changes in another. Divided by : 1. Price elasticity of demand 2. Price elasticity of supply 15

16 Price elasticity of demand Coefisien Elasticity Measures how much the quantity demanded of a good changes when its price changes. ED = % change in quantity demanded % change in price 16

17 VALUE OF DEMAND ELASTICITY 1. E > 1 : Elastic. 2. E < 1 : In elastic. 3. E = 1 : Unit elastic. 17

18 Price Equilibrium The market equilibrium comes at that price and quantity where the forces of supply and demand are in balance. At the equilibrium price, the amount that buyers want to buy is jusst equal to the amount that sellers want to sell. 18

19 Price Equilibrium Table Price (Rp) Quantity demanded Quantity supplied State of market Excess supply Equilibrium Excess demand

20 Price Price Equilibrium D Excess Supply S E D S S1 Excess Demand D Quantity 20

21 Marginal Buyer Marginal Buyer : any buyer who purchases has a willingness to pay in the market price Super-Marginal Buyers : any buyer who purchases has a willingness to pay above the market price Sub-Marginal Buyers : any buyer who purchases has a willingness to pay below the market price 21

22 Marginal Seller Marginal Seller : any firm who produces has a willingness to pay in the market price. Sub-Marginal Seller : any firm who produces has a willingness to sell above the market price. Super-Marginal Seller : any firm who produces has a willingness to sell below the market price. 22