supply and demand
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Supply and DemandSupply and Demand
Supply and DemandSupply and Demand
DemandDemand
DEMANDDEMAND
Relationship between demand and price the law of demand the income effect the substitution effect
The demand curve assumptions
other things being equal (ceteris paribus) a given time period
the axes individual's and market demand curves
Relationship between demand and price the law of demand the income effect the substitution effect
The demand curve assumptions
other things being equal (ceteris paribus) a given time period
the axes individual's and market demand curves
The demand curve:The demand for potatoes (monthly)
The demand curve:The demand for potatoes (monthly)
0
20
40
60
80
100
0 100 200 300 400 500 600 700 800
Quantity (tonnes: 000s)
Pri
ce (
pen
ce p
er k
g)
Price(pence per kg)
20
Market demand(tonnes 000s)
700A
Point
A
Market demand for potatoes (monthly)Market demand for potatoes (monthly)
Demand
0
20
40
60
80
100
0 100 200 300 400 500 600 700 800
Quantity (tonnes: 000s)
Pri
ce (
pen
ce p
er k
g)
Price(pence per kg)
20
40
Market demand(tonnes 000s)
700
500
A
B
Point
A
B
Demand
Market demand for potatoes (monthly)Market demand for potatoes (monthly)
0
20
40
60
80
100
0 100 200 300 400 500 600 700 800
Quantity (tonnes: 000s)
Pri
ce (
pen
ce p
er k
g)
Price(pence per kg)
20
40
60
Market demand(tonnes 000s)
700
500
350
A
B
C
Point
A
B
C
Demand
Market demand for potatoes (monthly)Market demand for potatoes (monthly)
0
20
40
60
80
100
0 100 200 300 400 500 600 700 800
Quantity (tonnes: 000s)
Pri
ce (
pen
ce p
er k
g)
Price(pence per kg)
20
40
60
80
Market demand(tonnes 000s)
700
500
350
200
A
B
C
D
Point
A
B
C
D
Demand
Market demand for potatoes (monthly)Market demand for potatoes (monthly)
0
20
40
60
80
100
0 100 200 300 400 500 600 700 800
Quantity (tonnes: 000s)
Pri
ce (
pen
ce p
er k
g)
Price(pence per kg)
20
40
60
80
100
Market demand(tonnes 000s)
700
500
350
200100
A
B
C
D
E
Point
A
B
C
D
E
Demand
Market demand for potatoes (monthly)Market demand for potatoes (monthly)
DEMANDDEMAND
Other determinants of demand
tastes
number and price of substitute goods
number and price of complementary goods
income
distribution of income
expectations
Other determinants of demand
tastes
number and price of substitute goods
number and price of complementary goods
income
distribution of income
expectations
DEMANDDEMAND
Movements along and shifts in the demand curve
change in price
movement along D curve
change in any other determinant of demand
shift in D curve
• increase in demand rightward shift
• decrease in demand leftward shift
Movements along and shifts in the demand curve
change in price
movement along D curve
change in any other determinant of demand
shift in D curve
• increase in demand rightward shift
• decrease in demand leftward shift
D1
Pric
e
P
O Q0 Q1
Quantity
An increase in demandAn increase in demand
D0
DEMANDDEMAND
Demand functions
simple demand functions
Qd = a – bP
more complex demand functions
Qd = a – bP + cY + dPs – ePc
estimated demand equations
problems of estimating demand equations
demand functions and the demand curve
Demand functions
simple demand functions
Qd = a – bP
more complex demand functions
Qd = a – bP + cY + dPs – ePc
estimated demand equations
problems of estimating demand equations
demand functions and the demand curve
0
10
20
30
40
50
0 2 4 6 8 10
D
P
Q (000s)
Demand curve for equation: Qd = 10 000 – 200PDemand curve for equation: Qd = 10 000 – 200P
0
10
20
30
40
50
0 2 4 6 8 10
P
5
Qd (000s)
9
Demand curve for equation: Qd = 10 000 – 200PDemand curve for equation: Qd = 10 000 – 200P
D
P
Q (000s)
0
10
20
30
40
50
0 2 4 6 8 10
P
510
Qd (000s)
98
D
P
Q (000s)
Demand curve for equation: Qd = 10 000 – 200PDemand curve for equation: Qd = 10 000 – 200P
0
10
20
30
40
50
0 2 4 6 8 10
P
51015
Qd (000s)
987
D
P
Q (000s)
Demand curve for equation: Qd = 10 000 – 200PDemand curve for equation: Qd = 10 000 – 200P
0
10
20
30
40
50
0 2 4 6 8 10
P
5101520
Qd (000s)
9876
D
P
Q (000s)
Demand curve for equation: Qd = 10 000 – 200PDemand curve for equation: Qd = 10 000 – 200P
Supply and DemandSupply and Demand
SupplySupply
SUPPLYSUPPLY
Relationship between supply and price short-run supply
long-run supply
The supply curve assumptions
other things remain equal (ceteris paribus)
a given time period
the axes
individual's and market supply curves
Relationship between supply and price short-run supply
long-run supply
The supply curve assumptions
other things remain equal (ceteris paribus)
a given time period
the axes
individual's and market supply curves
The supply curve:The supply of potatoes (monthly)
The supply curve:The supply of potatoes (monthly)
0
20
40
60
80
100
0 100 200 300 400 500 600 700 800
Pri
ce (
pen
ce p
er k
g)
Quantity (tonnes: 000s)
Supply
a
P
20
Q
100a
Market supply of potatoes (monthly)Market supply of potatoes (monthly)
0
20
40
60
80
100
0 100 200 300 400 500 600 700 800
Pri
ce (
pen
ce p
er k
g)
Quantity (tonnes: 000s)
Supply
a
b
P
20 40
Q
100200
ab
Market supply of potatoes (monthly)Market supply of potatoes (monthly)
0
20
40
60
80
100
0 100 200 300 400 500 600 700 800
Pri
ce (
pen
ce p
er k
g)
Quantity (tonnes: 000s)
Supply
a
b
c
P
20 40 60
Q
100200350
abc
Market supply of potatoes (monthly)Market supply of potatoes (monthly)
0
20
40
60
80
100
0 100 200 300 400 500 600 700 800
Pri
ce (
pen
ce p
er k
g)
Quantity (tonnes: 000s)
Supply
a
b
c
d P
20 40 60 80
Q
100200350530
abcd
Market supply of potatoes (monthly)Market supply of potatoes (monthly)
0
20
40
60
80
100
0 100 200 300 400 500 600 700 800
Pri
ce (
pen
ce p
er k
g)
Quantity (tonnes: 000s)
Supply
a
b
c
d
e
P
20 40 60 80100
Q
100200350530700
abcde
Market supply of potatoes (monthly)Market supply of potatoes (monthly)
SUPPLYSUPPLY
Relationship between supply and price short-run supply long-run supply
The supply curve assumptions
other things remain equal (ceteris paribus) a given time period
the axes individual's and market supply curves why supply curves generally slope up
Relationship between supply and price short-run supply long-run supply
The supply curve assumptions
other things remain equal (ceteris paribus) a given time period
the axes individual's and market supply curves why supply curves generally slope up
SUPPLYSUPPLY
Other determinants of supply
costs of production
profitability of alternative products (substitutes in supply)
profitability of goods in joint supply
nature and other random shocks
aims of producers
expectations of producers
Other determinants of supply
costs of production
profitability of alternative products (substitutes in supply)
profitability of goods in joint supply
nature and other random shocks
aims of producers
expectations of producers
SUPPLYSUPPLY
Movements along and shifts in the supply curve
change in price
movement along S curve
change in any other determinant of supply
shift in S curve
• increase in supply rightward shift
• decrease in supply leftward shift
Movements along and shifts in the supply curve
change in price
movement along S curve
change in any other determinant of supply
shift in S curve
• increase in supply rightward shift
• decrease in supply leftward shift
SUPPLYSUPPLY
Supply functions
simple supply functions
Qs = a + bP
more complex supply functions
Qs = a + bP + cC + dPs – ePj
estimated supply equations
problems of estimating supply equations
Supply functions
simple supply functions
Qs = a + bP
more complex supply functions
Qs = a + bP + cC + dPs – ePj
estimated supply equations
problems of estimating supply equations
P
QO
S0
Increase
Shifts in the supply curveShifts in the supply curve
S1
P
QO
S2 S0 S1
IncreaseDecrease
Shifts in the supply curveShifts in the supply curve
Supply and DemandSupply and Demand
Price and output determination
Price and output determination
PRICE AND OUTPUT DETERMINATIONPRICE AND OUTPUT DETERMINATION
Equilibrium price and output
response to shortages and surpluses
shortage (D > S)
price rises
surplus (S > D)
price falls
significance of ‘equilibrium’
Equilibrium price and output
response to shortages and surpluses
shortage (D > S)
price rises
surplus (S > D)
price falls
significance of ‘equilibrium’
Equilibrium price and output:The Market Demand and Supply of Potatoes (Monthly)
Equilibrium price and output:The Market Demand and Supply of Potatoes (Monthly)
0
20
40
60
80
100
0 100 200 300 400 500 600 700 800
The determination of market equilibrium (potatoes: monthly)
The determination of market equilibrium (potatoes: monthly)
Quantity (tonnes: 000s)
E
D
C
Aa
c
d
e
Supply
Demand
Pri
ce (
pen
ce p
er k
g)
Bb
0
20
40
60
80
100
0 100 200 300 400 500 600 700 800
Quantity (tonnes: 000s)
E
D
C
B
Aa
b
c
d
e
Supply
Demand
Pri
ce (
pen
ce p
er k
g)
SHORTAGE
(300 000)
The determination of market equilibrium (potatoes: monthly)
The determination of market equilibrium (potatoes: monthly)
0
20
40
60
80
100
0 100 200 300 400 500 600 700 800
Quantity (tonnes: 000s)
E
C
B
Aa
b
c
e
Supply
Demand
Pri
ce (
pen
ce p
er k
g)
D dSURPLUS
(330 000)
The determination of market equilibrium (potatoes: monthly)
The determination of market equilibrium (potatoes: monthly)
0
20
40
60
80
100
0 100 200 300 400 500 600 700 800
D d
Qe
Quantity (tonnes: 000s)
E
B
Aa
b
e
Supply
Demand
Pri
ce (
pen
ce p
er k
g)The determination of market equilibrium
(potatoes: monthly)The determination of market equilibrium
(potatoes: monthly)
PRICE AND OUTPUT DETERMINATIONPRICE AND OUTPUT DETERMINATION
Effects of shifts in the demand curve
movement along the supply curve and the new demand curve
Effects of shifts in the demand curve
movement along the supply curve and the new demand curve
Effect of a shift in the demand curveEffect of a shift in the demand curveP
QO
Pe1
Qe1
S
D1
g
P
QO
Pe1
Qe1
S
D1
g
Effect of a shift in the demand curveEffect of a shift in the demand curve
P
QO
Pe1
Qe1
S
D1
D2
g
Effect of a shift in the demand curveEffect of a shift in the demand curve
P
QO
Pe1
Qe1
S
g h
D1
D2
Pe2
Qe2
i
Effect of a shift in the demand curveEffect of a shift in the demand curve
PRICE AND OUTPUT DETERMINATIONPRICE AND OUTPUT DETERMINATION
Effects of shifts in the demand curve
movement along the supply curve and the new demand curve
Effects of shifts in the supply curve
movement along demand curve and new supply curve
Effects of shifts in the demand curve
movement along the supply curve and the new demand curve
Effects of shifts in the supply curve
movement along demand curve and new supply curve
Effect of a shift in the supply curveEffect of a shift in the supply curveP
QO
Pe1
Qe1
D
S1
g
P
QO
Pe1
Qe1
D
S1
g
Effect of a shift in the supply curveEffect of a shift in the supply curve
P
QO
Pe1
Qe1
D
S1
S2
g
Effect of a shift in the supply curveEffect of a shift in the supply curve
P
QO
Pe1
Pe3
Qe3Qe1
D
S1
S2
j g
k
Effect of a shift in the supply curveEffect of a shift in the supply curve
PRICE AND OUTPUT DETERMINATIONPRICE AND OUTPUT DETERMINATION
Effects of shifts in the demand curve
movement along the supply curve and the new demand curve
Effects of shifts in the supply curve
movement along demand curve and new supply curve
Identifying the position of demand and supply curves
Effects of shifts in the demand curve
movement along the supply curve and the new demand curve
Effects of shifts in the supply curve
movement along demand curve and new supply curve
Identifying the position of demand and supply curves
Problems in identifying the position and shape of the demand curve: shift in supply curve
Problems in identifying the position and shape of the demand curve: shift in supply curve
P
O Q
S1
1000
20p a
P
O Q
S1
S2
800 1000
20p
30p b
a
Problems in identifying the position and shape of the demand curve: shift in supply curve
Problems in identifying the position and shape of the demand curve: shift in supply curve
P
O Q
D
S1
S2
800 1000
20p
30p b
a
Problems in identifying the position and shape of the demand curve: shift in supply curve
Problems in identifying the position and shape of the demand curve: shift in supply curve
Problems in identifying the position and shape of the demand curve: shift in supply and demand curves
Problems in identifying the position and shape of the demand curve: shift in supply and demand curves
P
O Q
S1
20p a
1000
P
O Q
S1
S2
20p
30p b
a
800 1000
Problems in identifying the position and shape of the demand curve: shift in supply and demand curves
Problems in identifying the position and shape of the demand curve: shift in supply and demand curves
P
O Q
S1
S2
800 1000
20p
30p b
a
D1
D2
Problems in identifying the position and shape of the demand curve: shift in supply and demand curves
Problems in identifying the position and shape of the demand curve: shift in supply and demand curves
Supply and DemandSupply and Demand
ElasticityElasticity
ELASTICITYELASTICITY
Defining elasticity
the responsiveness of demand and supply
Price elasticity of demand
the responsiveness of demand to a change in price
Defining elasticity
the responsiveness of demand and supply
Price elasticity of demand
the responsiveness of demand to a change in price
Quantity
Pri
ce
O Q1
P1
a
S1
D
Market supply and demandMarket supply and demand
Quantity
Pri
ce
O Q2 Q1
P1
P2
b
S2
S1
D
a
Market supply and demandMarket supply and demand
Quantity
Pri
ce
O Q2 Q1
P1
P2
S2
S1
D
D'
a
b
Market supply and demandMarket supply and demand
Quantity
Pri
ce
O Q3 Q2 Q1
P1
P2
P3
c
S2
S1
D
D'
a
b
Market supply and demandMarket supply and demand
ELASTICITYELASTICITY
Price elasticity of demand
measurement
proportionate (or %) Qd / proportionate (or %) P
use of proportionate or percentage changes
the sign (positive or negative)
the value (greater or less than one)
Price elasticity of demand
measurement
proportionate (or %) Qd / proportionate (or %) P
use of proportionate or percentage changes
the sign (positive or negative)
the value (greater or less than one)
ELASTICITYELASTICITY
Determinants of price elasticity of demand number and closeness of substitute goods
the proportion of income spent on the good
time
Price elasticity of demand and consumer expenditure (P x Q)
Determinants of price elasticity of demand number and closeness of substitute goods
the proportion of income spent on the good
time
Price elasticity of demand and consumer expenditure (P x Q)
Consumers’ total expenditure =
firms’ total revenue=
£2 x 3m = £6m
Consumers’ total expenditure =
firms’ total revenue=
£2 x 3m = £6m
P(£)
Q (millions of units per period of time)
D
Total expenditureTotal expenditure
0
1
2
3
4
0 1 2 3 4 5
ELASTICITYELASTICITY
Price elasticity of demand and consumer expenditure (P x Q)
effects of a price change on expenditure: elastic demand
Price elasticity of demand and consumer expenditure (P x Q)
effects of a price change on expenditure: elastic demand
P(£)
Q (millions of units per period of time)
0
aD
Elastic demand between two pointsElastic demand between two points
Expenditure fallsas price rises
4
20
5
10
b
ELASTICITYELASTICITY
Price elasticity of demand and consumer expenditure (P x Q)
effects of a price change on expenditure: elastic demand
effects of a price change on expenditure: inelastic demand
Price elasticity of demand and consumer expenditure (P x Q)
effects of a price change on expenditure: elastic demand
effects of a price change on expenditure: inelastic demand
a4
20
P(£)
Q (millions of units per period of time)
0
D
Expenditure risesas price rises
Inelastic demand between two pointsInelastic demand between two points
8
15
c
ELASTICITYELASTICITY
Price elasticity of demand and consumer expenditure (P x Q)
effects of a price change on expenditure: elastic demand
effects of a price change on expenditure: inelastic demand
special cases
Price elasticity of demand and consumer expenditure (P x Q)
effects of a price change on expenditure: elastic demand
effects of a price change on expenditure: inelastic demand
special cases
P2
P
QO Q1
P1
D
b
a
Totally inelastic demand (PD = 0)Totally inelastic demand (PD = 0)
Q2
P
QO Q1
P1 Da b
Infinitely elastic demand (PD = )Infinitely elastic demand (PD = )
P
QO 40
20
D
100
8
a
Unit elastic demand (PD = –1)Unit elastic demand (PD = –1)
b
ELASTICITYELASTICITY
Price elasticity of demand and consumer expenditure (P x Q)
effects of a price change on expenditure: elastic demand
effects of a price change on expenditure: inelastic demand
special cases
applications to price decisions
Price elasticity of demand and consumer expenditure (P x Q)
effects of a price change on expenditure: elastic demand
effects of a price change on expenditure: inelastic demand
special cases
applications to price decisions
P(£)
Q (millions of units per period of time)
0
b
aD
5
4
10 20
Expenditure fallsas price rises
Elastic demand between two pointsElastic demand between two points
P(£)
Q (millions of units per period of time)
0
c
a
D
8
4
15 20
Expenditure risesas price rises
Inelastic demand between two pointsInelastic demand between two points
ELASTICITYELASTICITY
Price elasticity of demand and consumer expenditure (P x Q)
effects of a price change on expenditure: elastic demand
effects of a price change on expenditure: inelastic demand
special cases
applications to price decisions
different elasticities along a demand curve
Price elasticity of demand and consumer expenditure (P x Q)
effects of a price change on expenditure: elastic demand
effects of a price change on expenditure: inelastic demand
special cases
applications to price decisions
different elasticities along a demand curve
Different elasticities along different portions of a demand curveDifferent elasticities along different portions of a demand curve
P
QO
P1
Q1
a
D
P
QO
P1
P2
Q1 Q2
a
b
D
Elasticdemand
Different elasticities along different portions of a demand curveDifferent elasticities along different portions of a demand curve
P
QO
P1
P2
P3
Q1 Q2Q3
a
b
c
D
Inelasticdemand
Different elasticities along different portions of a demand curveDifferent elasticities along different portions of a demand curve
ELASTICITYELASTICITY
Measurement of elasticity: arc elasticity
the formula for price elasticity of demand
Q/Q ÷ P/P
using the average or 'mid-point' method
Measurement of elasticity: arc elasticity
the formula for price elasticity of demand
Q/Q ÷ P/P
using the average or 'mid-point' method
0
2
4
6
8
10
0 10 20 30 40 50
P (£)
Q (000s)
Demand
Measuring elasticity using the arc methodMeasuring elasticity using the arc method
m
n
0
2
4
6
8
10
0 10 20 30 40 50
P (£)
Q (000s)
Q P
mid Q mid PPd =
Demand
m
n
Q = 10
P = –2
Mid P
7
Mid Q15
Measuring elasticity using the arc methodMeasuring elasticity using the arc method
0
2
4
6
8
10
0 10 20 30 40 50
P (£)
Q (000s)
Q P
mid Q mid PPd =
10 2 15 7
=
Demand
m
n
Q = 10
P = –2
Mid P
7
Mid Q15
Measuring elasticity using the arc methodMeasuring elasticity using the arc method
0
2
4
6
8
10
0 10 20 30 40 50
P (£)
Q (000s)
Q P
mid Q mid PPd =
10 2 15 7
=
= 10/15 x 7/2
Demand
m
n
Q = 10
P = –2
Mid P
7
Mid Q15
Measuring elasticity using the arc methodMeasuring elasticity using the arc method
0
2
4
6
8
10
0 10 20 30 40 50
P (£)
Q (000s)
Q P
mid Q mid PPd =
10 2 15 7
=
= 10/15 x 7/2
= 70/30
Demand
m
n
Q = 10
P = –2
Mid P
7
Mid Q15
Measuring elasticity using the arc methodMeasuring elasticity using the arc method
0
2
4
6
8
10
0 10 20 30 40 50
P (£)
Q (000s)
Q P
mid Q mid PPd =
10 2 15 7
=
= 10/15 x 7/2
= 70/30
= 7/3 = 2.33
Demand
m
n
Q = 10
P = –2
Mid P
7
Mid Q15
Measuring elasticity using the arc methodMeasuring elasticity using the arc method
ELASTICITYELASTICITY
Measurement of elasticity: point elasticity
the formula for price elasticity of demand
dQ/dP x P/Q
the elasticity of a straight-line demand ‘curve’ (constant dQ/dP)
the elasticity of a curved demand curve
dQ/dP is the tangent to the curve
Measurement of elasticity: point elasticity
the formula for price elasticity of demand
dQ/dP x P/Q
the elasticity of a straight-line demand ‘curve’ (constant dQ/dP)
the elasticity of a curved demand curve
dQ/dP is the tangent to the curve
Measuring elasticity at a pointMeasuring elasticity at a point
P
Q
0
D
r
Pd = (1 / slope) x P/Q
P
Q
30
0 40
D
r
50
100
Pd = (1 / slope) x P/Q
Measuring elasticity at a pointMeasuring elasticity at a point
P
Q
50
30
0 40 100
D
r
Pd = (1 / slope) x P/Q
= 100/50 x 30/40
Measuring elasticity at a pointMeasuring elasticity at a point
P
Q
50
30
0 40 100
D
r
Pd = (1 / slope) x P/Q
= 100/50 x 30/40
= 60/40
Measuring elasticity at a pointMeasuring elasticity at a point
P
Q
50
30
0 40 100
D
r
Pd = (1 / slope) x P/Q
= 100/50 x 30/40
= 60/40
= 1.5
Measuring elasticity at a pointMeasuring elasticity at a point
ELASTICITYELASTICITY
Measurement of elasticity: point elasticity the formula for price elasticity of demand
dQ/dP x P/Q
the elasticity of a straight-line demand ‘curve’ (constant dQ/dP)
the elasticity of a curved demand curve
dQ/dP is the tangent to the curve
different elasticities along a straight-line demand curve
Measurement of elasticity: point elasticity the formula for price elasticity of demand
dQ/dP x P/Q
the elasticity of a straight-line demand ‘curve’ (constant dQ/dP)
the elasticity of a curved demand curve
dQ/dP is the tangent to the curve
different elasticities along a straight-line demand curve
0
2
4
6
8
10
0 10 20 30 40 50
Different elasticities along a straight-line demand curveDifferent elasticities along a straight-line demand curve
P
Q
Demand
n
m
l
k
Pd = (1 / slope) x P/Q
0
2
4
6
8
10
0 10 20 30 40 50
P
Q
Demand
n
m
l
k
Pd = (1 / slope) x P/Q
(1 / slope) is constant
= 50/10 = 5
Different elasticities along a straight-line demand curveDifferent elasticities along a straight-line demand curve
0
2
4
6
8
10
0 10 20 30 40 50
P
Q
Demand
n
m
l
k
Pd = (1 / slope) x P/Q
(1 / slope) is constant
= 50/10 = 5But P/Q varies:
at n, P/Q = 8/10
Different elasticities along a straight-line demand curveDifferent elasticities along a straight-line demand curve
0
2
4
6
8
10
0 10 20 30 40 50
P
Q
Demand
n
m
l
k
Pd = (1 / slope) x P/Q
(1 / slope) is constant
= 50/10 = 5But P/Q varies:
at n, P/Q = 8/10at m, P/Q = 6/20at l, P/Q = 4/30
l
Different elasticities along a straight-line demand curveDifferent elasticities along a straight-line demand curve
ELASTICITYELASTICITY
Price elasticity of supply measurement
determinants
applications
Price elasticity of supply measurement
determinants
applications
Supply in different time periodsSupply in different time periods
D1
P1
Q1
P
Q O
a
D1
D2
P1
Q1
P
Q O
a
Supply in different time periodsSupply in different time periods
D1
D2
Si
P1
P2
Q1
P
Q O
a
b
Supply in different time periodsSupply in different time periods
D1
D2
Si SS
P1
P3
P2
Q1 Q3
P
Q O
a
b
c
Supply in different time periodsSupply in different time periods
D1
D2
Si SS
SL
P1
P3
P2
Q1 Q3
P
Q O
a
b
c
P4
Q4
d
Supply in different time periodsSupply in different time periods
ELASTICITYELASTICITY
Income elasticity of demand
measurement
determinants
applications
Cross-price elasticity of demand
measurement
determinants
applications
Income elasticity of demand
measurement
determinants
applications
Cross-price elasticity of demand
measurement
determinants
applications
Supply and DemandSupply and Demand
The Time DimensionThe Time
Dimension
THE TIME DIMENSIONTHE TIME DIMENSION
Short-run and long-run price adjustment
short- and long-run demand and supply curves
short- and long-run adjustment to a change in demand or supply
Short-run and long-run price adjustment
short- and long-run demand and supply curves
short- and long-run adjustment to a change in demand or supply
D1
P1
Q1
P
Q O
Response of supply to an increase in demandResponse of supply to an increase in demand
a
D1
D2
P1
Q1
P
Q O
a
Response of supply to an increase in demandResponse of supply to an increase in demand
D1
D2
S short-run
P1
P2
Q1 Q2
P
Q O
a
b
Response of supply to an increase in demandResponse of supply to an increase in demand
D1
D2
S long-run
P1
P3
P2
Q1 Q2 Q3
P
Q O
b
c
S short-run
a
Response of supply to an increase in demandResponse of supply to an increase in demand
Response of demand to an increase in supplyResponse of demand to an increase in supply
S1
P1
Q1
P
Q O
a
S1
P1
Q1
P
Q O
a
S2
Response of demand to an increase in supplyResponse of demand to an increase in supply
S1
S2
D short-run
P1
P2
Q1 Q2
P
Q O
a
b
Response of demand to an increase in supplyResponse of demand to an increase in supply
S1
S2
D short-run
D long-run
P1
P3
P2
Q1 Q2 Q3
P
Q O
a
b
c
Response of demand to an increase in supplyResponse of demand to an increase in supply
THE TIME DIMENSIONTHE TIME DIMENSION
Short-run and long-run price adjustment short- and long-run demand and supply curves short- and long-run adjustment to a change in
demand or supply
Speculation
Short-run and long-run price adjustment short- and long-run demand and supply curves short- and long-run adjustment to a change in
demand or supply
Speculation
THE TIME DIMENSIONTHE TIME DIMENSION
Short-run and long-run price adjustment short- and long-run demand and supply curves short- and long-run adjustment to a change in
demand or supply
Speculation stabilising speculation
Short-run and long-run price adjustment short- and long-run demand and supply curves short- and long-run adjustment to a change in
demand or supply
Speculation stabilising speculation
Stabilising speculation: initial price fallStabilising speculation: initial price fall
P1
P
Q O
S1
D1
a
P1
P2
P
Q O
D2
a
b
S1
D1
Stabilising speculation: initial price fallStabilising speculation: initial price fall
S2
D3
P1
P2
P
Q O
P3
D2
a
b
c
S1
D1
Stabilising speculation: initial price fallStabilising speculation: initial price fall
Stabilising speculation: initial price riseStabilising speculation: initial price rise
P1
P
Q O
S1
D1
a
P1
P2
P
Q O
S1
D1
D2
a
b
Stabilising speculation: initial price riseStabilising speculation: initial price rise
P1
P2
P
Q O
P3
S1
S2
D1
D2
a
b
D3
c
Stabilising speculation: initial price riseStabilising speculation: initial price rise
THE TIME DIMENSIONTHE TIME DIMENSION
Short-run and long-run price adjustment short- and long-run demand and supply curves short- and long-run adjustment to a change in
demand or supply
Speculation stabilising speculation destabilising speculation
Short-run and long-run price adjustment short- and long-run demand and supply curves short- and long-run adjustment to a change in
demand or supply
Speculation stabilising speculation destabilising speculation
Destabilising speculation: initial price fallDestabilising speculation: initial price fall
P1
P
Q O
S1
D1
a
P1
P2
P
Q O
S1
D1
D2
a
b
Destabilising speculation: initial price fallDestabilising speculation: initial price fall
P1
P2
P
Q O
P3
S1
S2
D1
D2
a
b
D3
c
Destabilising speculation: initial price fallDestabilising speculation: initial price fall
Destabilising speculation: initial price riseDestabilising speculation: initial price rise
P1
P
Q O
S1
D1
a
P1
P2
P
Q O
S1
D1
D2
a
b
Destabilising speculation: initial price riseDestabilising speculation: initial price rise
P1
P2
P
Q O
P3
S1
S2
D1
D2
a
b
D3
c
Destabilising speculation: initial price riseDestabilising speculation: initial price rise
THE TIME DIMENSIONTHE TIME DIMENSION
Short-run and long-run price adjustment short- and long-run demand and supply curves short- and long-run adjustment to a change in
demand or supply
Speculation stabilising speculation destabilising speculation
Uncertainty and risk
Short-run and long-run price adjustment short- and long-run demand and supply curves short- and long-run adjustment to a change in
demand or supply
Speculation stabilising speculation destabilising speculation
Uncertainty and risk
THE TIME DIMENSIONTHE TIME DIMENSION
Short-run and long-run price adjustment short- and long-run demand and supply curves short- and long-run adjustment to a change in
demand or supply
Speculation stabilising speculation destabilising speculation
Uncertainty and risk defining risk and uncertainty
Short-run and long-run price adjustment short- and long-run demand and supply curves short- and long-run adjustment to a change in
demand or supply
Speculation stabilising speculation destabilising speculation
Uncertainty and risk defining risk and uncertainty
THE TIME DIMENSIONTHE TIME DIMENSION
Short-run and long-run price adjustment short- and long-run demand and supply curves short- and long-run adjustment to a change in
demand or supply
Speculation stabilising speculation destabilising speculation
Uncertainty and risk defining risk and uncertainty reducing risks by holding stocks
Short-run and long-run price adjustment short- and long-run demand and supply curves short- and long-run adjustment to a change in
demand or supply
Speculation stabilising speculation destabilising speculation
Uncertainty and risk defining risk and uncertainty reducing risks by holding stocks
THE TIME DIMENSIONTHE TIME DIMENSION
Short-run and long-run price adjustment short- and long-run demand and supply curves short- and long-run adjustment to a change in
demand or supply
Speculation stabilising speculation destabilising speculation
Uncertainty and risk defining risk and uncertainty reducing risks by holding stocks futures markets
Short-run and long-run price adjustment short- and long-run demand and supply curves short- and long-run adjustment to a change in
demand or supply
Speculation stabilising speculation destabilising speculation
Uncertainty and risk defining risk and uncertainty reducing risks by holding stocks futures markets
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