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Economics Demand and Supply

Essay by   •  November 29, 2018  •  Exam  •  3,139 Words (13 Pages)  •  70 Views

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Demand and Supply

1. What is the law of demand? Why does a demand curve slop downward? How a market demand curve is derived from individual demand curves?

The law of demand states that other factors being constant, price and quantity demand of any good and service are inversely related each other. The demand curve slop downward because of increase in quantity demanded as the price declines.

        Market demand curve is derived horizontally demanded for the product. The market demand curve will show the relationship between the price of the product and the quantity demanded by all consumers, other thing remaining constant. For example:

Table: Individual and Market Demand Schedules

Price of apple

Aiman

Shafiq

Market

0.00

10

6

16

1.00

8

5

13

2.00

6

4

10

3.00

4

3

7

4.00

2

2

4

5.00

0

1

1

Market demand as the sum of the demands of all consumers

[pic 1][pic 2][pic 3]

2. What are the determinations of demand? What happen to the demand curve when each of these determinants change? Distinguish between a change in demand and a change in the quantity demanded, indicating the causes of each.

  1. Demand simply denotes the willingness and a person ability to purchase. The are many factors determine the demand. Among the determine of demand are:
  1. Number of buyer
  2. Expectation future price
  3. Income
  4. Price of related goods
  5. Taste
  6. Price
  1. The are many factors determine the demand. Determination of demand can shift of a demand curve will take place when each of these determinant change. For example, if non-price determinant change that increase the quantity demanded at any given price, shift the demand curve to the right, if it change decrease quantity demanded, shift the demand curve to the left.
  2. Change in demand :

Change in demand will result in the shift in the demand curve. As opposed to quantity demanded, where the change may lead to the movement along the demand. Change in demand caused by a shift in tastes, changes in population, and changes in income, prices of substitute or complement goods, or changes future expectations.

Change in the quantity demanded:

Change in quantity demanded, is the actual amount of goods desired at a certain price. On the other hand, changes in quantity demanded is due to price. The only factor that can cause a change in quantity demanded is price. A related, but distinct, concept is a change in demand.

3. As Siti’s income increases, her demand for shoes increases. Are shoes normal or inferior goods for Siti? What happens to Siti’s demand for shoes when there is an increase in her income?

  1. Demand for normal goods is pofitively correlated with income. Shoes is normal goods for Siti. Therefore, if Siti’s income are increase, she will buy more shoes as their incomes increase.

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When Siti’s income increase, the quantity of demands will increase. Hence, the demand curve shift to the right.

4. What are determinants of supply? What happens to the supply curve when each of these determinants changes? Distinguish between a change in supply and a change in the quantity supplied, noting the cause(s) of each.

i)  Determinants of supply are:

        1) Input price

        2) Technology

        3) Number of producer

        4) Expectation

ii) The determinants of supply are:

  1. Input price[pic 16]

[pic 17][pic 18][pic 19][pic 20]

[pic 21]

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[pic 23]

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[pic 25][pic 26]

[pic 27]

  1. Technology

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[pic 29][pic 30]

[pic 31][pic 32][pic 33]

[pic 34]

 [pic 35]

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[pic 37]

[pic 38][pic 39]

  1. Number of producer[pic 40]

[pic 41][pic 42][pic 43][pic 44][pic 45]

[pic 46]

[pic 47]

[pic 48]

[pic 49][pic 50]

        [pic 51]

  1. Expectation

[pic 52]

[pic 53]

[pic 54][pic 55][pic 56]

[pic 57]

[pic 58]

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[pic 61][pic 62]

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iii. Distinguish between a change in supply and a change in the quantity supplied, noting the cause(s) of each

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