2-demand supply market.pptx

8/17/2019 2-Demand Supply Market.pptx

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Demand Supply Market


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Demand Curve

Higher the price charged for a good, less ofit people will be willing to buy.

Consequently, the lower its market prices,the more units will be demanded.

A graphical representation of relationshipbetween price and quantity demanded,

holding constant all other variables thatinuence demand, is called as Demandcurve.


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3

Number of Bottlesper Month

Price perBottle

A

B

4.00

2.00

D

40,000 60,000

At 2.00 per bottle,

60,000 bottles are

demanded (point B).

When the price is 4.00

per bottle, 40,000 bottlesare demanded (point A).


4/31

Demand schedule for luxury suites inthe hospital

Price per Suiteper night Quantity ofsuitesdemanded

4000 1

!00 000 4

"000 #


5/31

Downward slope means quantity and price areinversely related !"aw of downward slopingdemand#.

$ubstitution e%ect switching over to general

ward&ncome of consumers As income rises you tend

to buy more of everything

'rice ( availability of related good demand fornon)quali*ed doctor will be lower if quali*eddoctors reduce their fee.

+astes and preferences shaped by convenience,customs and social attitude.


6/31

$hift in Demand Curve

hen factors other than price changes.

&f price of medical remains same, demand

may increase due to

&ncrease in average income of people

&ncrease in population

'eople#s growing dependence on medicalcare

&ncrease burden of disease


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7

B C

2.00

60,000 80,000

D1

D2

An increase in incomeshifts the demand curve forsrup from D

1 to D

2 .


Price perBottle

At each price, more bottlesare demanded after theshift


8/31

-ovements along ( shifts of DemandCurve

8

Quantity

Price

D2

D1

!ntire demand curve shiftsri"ht#ard #hen$• income or #ealth ↑• price of substitute %• price of complement &• population %• e'pected price %• tastes shift to#ard "ood


9/31

-ovements along ( shifts ofDemand Curve

9

Quantity

Price

D1

D2

!ntire demand curve shiftsleft#ard #hen$• income or #ealth &• price of substitute &• price of complement %• population &• e'pected price &• tastes shift to#ard "ood


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Supply Curve

uantity of a good that businesses arewilling to produce and sell at each

conceivable price is $upply. +he relationship between the market price

of a commodity and the amount thatproducers are willing to produce and sell is

$upply curve.


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11

F

G

2.00

S

40,000 60,000

4.00

At 4.00 per bottle,uantit supplied is

60,000 bottles (point G).

When the price is 2.00per bottle, 40,000 bottlesare supplied (point F ).


Price perBottle


12/31

$upply Curve for lu/ury suites in

hospital

Price per suite pernight

Quantity of suiteshospital $ill supply

4000 %!00 !

000 4

"000 "

1000 0


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Direct relationship &et$een price and'uantity supplied(

'roducer will be willing to sell more only at ahigher price. hy 0

"aw of diminishing returns 1iven all other input*/ed, if one input is increased the total output

will increase.Cost of production hen production cots are

very high relative to price, producers willproduce little or may quit producing.

Cost of production depends on 2 factorstechnological advance and prices of input.

+echnological advance reduces the per unitproduction costs and thus increases the supply.

'rices of production substitutes Hospitals

produce lu/ury as well as ordinary service. &f


14/31

A $hift of +he $upply Curve

14

S 2

G J

S 1

60,000

4.00

80,000

A decrease in transportationcosts shifts the suppl curve formaple srup from S

1 to S

2 .


Price perBottle

At each price, more bottlesare supplied after the shift


15/31

$upply of private hospitals might increasebecause government removed someregulatory burden on the market, orbecause new diagnostic machines have

become cheaper.Hence, supply of private hospital care

would tend to increase.

As a result, at each price, producers willsupply more hospital care and supply curveshifts to right.


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Market )'uili&rium

hat happens when suppliers and demanders meet 0

$upply and demand forces in the market will producemarket equilibrium, which comes at that price andquantity where supply and demand forces are in

balancehen a market is in equilibrium6oth price of good and quantity bought and sold

have settled into a state of rest +he equilibrium price and equilibrium quantity are

values for price and quantity in the market but,once achieved, will remain constant 7nless and until supply curve or demand curve

shifts


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17

E

H

J .00

*.00

D

S

+0,000 +,0002+,000

!'cess -emand

4. until price reaches itseuilibrium value of *.00

.

2. causes the priceto rise . . .

*. shrinin" thee'cess demand . . .

. At a price of .00 perbottle an e'cess demandof +0,000 bottles . . .


Price perBottle


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8/cess $upply and 'rice Ad9ustment

18

*. shrinin" thee'cess suppl . . .

K L

E *.00

D

S

+.00

+0,000*+,000 6+,000

!'cess /uppl at +.00

2. causes theprice to drop,

4. until price reaches its

euilibrium value of

*.00.


Price perBottle

. At a price of +.00 perbottle an e'cess supplof *0,000 bottles . . .


19/31

Price*per

suite+night,

Quantity of

suitesdemand

ed

Quantity of

suitessupplie

d

State ofMarket

Pressure onprice

:;;; < = $urplus

>?;; > ? $urplus

>;;; : : 8quilibri

um

@eutral

2;;; 2 $hortage


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Demand shift

$uppose there is a change in diseasepro*le of the population.

-ore and more have become vulnerable todiseases, which need hospital care. Asresult, the demand curve shifts up and anew equilibrium is reached at point.


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21

. An increase indemand . . .E

F'

*.00

D1

D2

S

4.00

+0,000 60,000

*. to a ne#euilibrium.

+. and euilibrium uantitincreases too.

2. moves us alon"the supplcurve . . .

Number of Bottles ofMaple Syrup per Period

Price perBottle

4. !uilibriumpriceincreases


22/31

$upply $hift

$uppose government rela/es some regulatory

burden on the growth of private hospitals.

As a result, more hospitals enter into the

market leading to an upward shift of supplycurve, generating new equilibrium at a lower

price.

'rice goes down when supply shifts upwards,

due to increase in number of hospitals there isnow surplus of hospital care at the old price.

Hospitals are forced to reduce price.


23/31

Chained Market

hen prices are determined purely by the forcesof supply and demand Bree -arket

6ut non)market forces may shift demand and

supply making no attempt to regulate pricesdirectly, getting the market chained.

&t is sometimes good for the society to chain afree dog when it has a potential to be a monster.

hen society perceives that the price of privatehospital care is too high for the needy but poorpeople, the govt may want to control the priceby imposing some regulation on price.

&mmediately there would be an arti*cialshortage in the market, because now the


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&ts true that lower price allows some poor to buyprivate hospital care they could not otherwisehave a%orded. 6ut the restriction would alsoencourage the providers reserve supplies forelected people.

$upplier may even accept bribes from those who

can a%ord to pay e/tra to 9ump the queue.

)xample Drugs market in government hospitals.

Drugs are free cheap, as prices are keptarti*cially low for poor.

+hen why there are so many private pharmaciesoutside hospital 0

6ecause arti*cial restriction creates shortageand provides an incentive to establish a free

parallel market for drugs. Also poor are not


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)lasticity

How sensitive demand or supply is to factorslike change in price.

e know that if price rises then people will

buy less but how much less 0'rice elasticity of demand how sensitive is

the quantity demanded to a change in theprice of the good.

'rice elasticity of supply how sensitive is thequantity supplied to a change in the price ofthe good.


26/31

'rice elasticity of Demand

'8D E F change in quantity demanded

d9rfhrfh9F change in price of the good

'8D is always negative, reecting inverse

relationship between price and quantitydemanded.

Demand is price inelastic when '8D valuesbetween ; and )


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&f price of osteopathy rose by


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&f '8D is inelastic, a rise in price will lead topeople spending more while a fall in pricewill lead to people spending less.

&f '8D is elastic, a rise in price will lead topeople spending less while a fall in pricewill lead to people spending more.


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&f price of eye tests fell by 2; F and quantity ofeye tests bought rose by >;F the '8D would be0'rice elastic inelastic

hen the price of gasoline rises by


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'rice elasticity of $upplyHow sensitive quantity supplied is to a change

in the price of the good.

'8$ E F change in quantity suppliedbdk9d9999999d99hb9 n9999999999999999 F change in price

of the good'8$ is always positive reecting positive

relationship between price and quantitysupplied.

'8$ becomes more elastic over time.&n healthcare, '8$ is likely to be fairly inelastic

in the short run but much more elastic in longrun. 8ven if price rises signi*cantly it will take

time for *rms to react and to produce morehealthcare.


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hen the price of DaIinci paintings increasesby

2-demand supply market.pptx

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