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7/31/2019 Presentation Design Final

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Economic Analysis:

Demand and Supply


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Parts of Concept

Introduction (Aaron)

Demand (Sherman)

Supply (Hang and Fiona)

Market Equilibrium (Nelson)


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What is Supply and Demand

An economic model used in consumertheory

One of the most fundamental

concepts of economics

Backbone of a market economy


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Supply and Demand

Demand refers to how much of aproduct or service is desired by buyers

Supply represents how much the

market can offer


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Relationship between Demand

and Supply The quantity demanded is the amount

of a product people are willing to buy

at a certain price

The relationship between price and

quantity demanded is known as the

demand relationship


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Relationship between Demand

and Supply The quantity supplied refers to the

amount of a certain good producers

are willing to supply when receiving a

certain price

The correlation between price and

how much of a good or service issupplied to the market is known as the

supply relationship


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Relationship

Price is a reflection of supply anddemand

The relationship between demand andsupply underlie the forces behind the

allocation of resources


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DEMAND

The quantity of goods and services thatconsumers are willing and able to

purchase during a specified period undera given set of economic conditions

Demand referred here is effective demand

Money backed desire

Not the demand of a person wanting andgrabbing at everything it sees

Real, genuine demand backed by the ability tomake a purchase


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Factors affecting the demand

Price of the building/infrastructure

Current level of income

Consumers expectations

Government policy


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A standard market demand curve

Demand Curve

Price

ofgood

X

Quantity of good

X

The demand curve for most goods and services slopes downward from

left to right, as the higher the price, the lower the level of demand (other

things being equal)


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Law of Demand

There is an inverse relationshipbetween the price and the quantity

demanded, other things being equal

The higher the price, the less will be

demanded

The lower the price, the more will be

demanded


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Income

For most goods, an increased incomewill lead to an increased in demand

The phrase increase in demand correctlyimplies that more is being demanded ateach and every price

For most goods, an increase in incomewill lead to a rightward shift in theposition of the demand curve


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Changes in Consumer

Income Goods can be classified into two broad

categories:

Normal goods: The demand increases when

income increases

Inferior goods: The demand decreases whenincome increases

For example, the demand of private rentedaccommodation falls as more people are ableto buy their own homes


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Expectations

Consumers views on the future trends ofincomes, interest rates and productavailability may affect demand

This will prompt them to buy more or lessof a particular good even if its currentprice does not change

This is particular evident when weconsider the demand of constructionbased activities


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Example

For example, potential house purchaserswho believe that mortgage rates arelikely to rise may buy less property atcurrent prices

The demand curve for houses will shift tothe left

This reflects the fact that the quantity ofproperties demanded for purchase ateach and every price has reduced due toconsumer expectations that mortgage

rates will rise


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Government Policy

Legislation can affect the demand for acommodity in several ways

For example, changes in building

regulations have placed a greater focuson the standards expected for water andenergy usage

This, in turn, will influence the design of,and demand for, the standard fittingsand appliances used in kitchen,bathrooms and general heating


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The demand for these products has increased,regardless of their present price

Or to put it another way , the demand curve forall code compliant products has shifted to the

right

This reflects the fact that greater quantities ofthese units are bring demanded at each andevery price

The government can also influence the level ofdemand by changing taxes or creating a subsidy


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Supply

Supply indicates how much of a goodproducer are willing and able to offer perperiod at each possible price, otherthings are constant

Law of supply states that the quantitysupplied is usually directly related to theprice

The lower the price, the smaller the quantitysupplied

The higher the price, the greater the quantitysupplied


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Law of Supply

As price increases, a producer is morewilling to supply the goods and services

1. Higher prices attract resources fromlower-value uses

2. Higher prices increases the producersability to supply the goods and services

3. Marginal cost of production increasesas output increases

4. Producers must receive a higher returnin order to maintain or raise the quantitysupplied


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Exhibit: Supply Schedule and

Curve for pizzasThe supply curve and the

supply schedule both show

quantities of pizza supplied

per week at various prices by

all the pizza makers in themarket.

Price and quantity supplied aredirectly, or positively related.

Producers offer more for sale

at higher prices: supple

curve slopes upwards.


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Supply and Quantity Supplied

Supply refers to the relation betweenthe price and quantity supplied as

reflected by the supply curve or supply

schedule

Quantity supplied refers to a particular

amount offered for sale at a particularprice at a particular point on the

supply curve


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Individual Supply and Market

Supply Individual supply refers to the supply

of an individual producer

Market supply is the sum of individualsupplies of all producers in the market

Unless otherwise noted, we will bereferring to market supply


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Shifts of the Supply Curve

Determinants of supply other than theprice of goods and services

State of technology

Prices of relevant resources

Prices of alternate goods and services

Producer expectations Number of producers in the market

Exhibit: Change in Technology in


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Exhibit: Change in Technology in

Relation to the Increase in

Supply New technology is moreefficient eg. High-tech

oven

Production costs fall

leads to suppliers

providing an increase in

production for goods

and services

More is supplied at

various prices


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Changes in Prices of Relevant

Resources

Resources that are employed in theproduction of the goods and services

in question

For example, if the price of mozzarella

cheese falls, costs of pizza production

declines In reverse, if the price of a resource

increases then the supply will

decrease


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Prices of Alternative Goods

Alternative goods are those that use someof the same resources employed to

produce the goods and services under

consideration For example, as the price of bread

increases, so does the opportunity cost

of producing pizza then the supply of

pizza declines

A fall in an alternative good will make

pizza production more profitable so the

supply increases


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Changes in Producer

Expectations When a good or service can be easily

stored, future prices may be higher to

reduce the supply amount

Any change will result in a change of

future profitability and the supply curve

will shift


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Number of Producers

As market supply sums the amountsupplied at each price by the

producers, market supply will depend

on the number of producers on themarket

Higher amount of producers, highersupply

Low amount of producers, lower

supply


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Construction Industry

Residential Building Houses, unit/townhouses, large

alterations and small alterations

Non-residential Building

Retail, offices, other commercial etc

Engineering Construction

Bridges, rails, sewerage etc


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Construction Industry Supply

Issue Construction industry employs 9.1% of

the total workforce in Australia

Uncertain supply of suitably skilledlabour

Residential sector is the mostvulnerable

Ageing employment base

Unmet demands for housing


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Background

Boom in construction industry during1986-2001

Construction activity increased by 4%

Pressure on labour market

Small commitment to investment in

training, mainly apprenticeship training


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Solutions

Government Group training arrangements

New Apprenticeship System

Kirby Committee of Inquiry into LabourMarket ProgramsAustralian TraineeshipProgram

Other

Companies are supplying training

programs for apprentices


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Case Study

UKs construction and buildingservices sector is experiencing severe

skill crisis

40-50% retention rate

Decline rate of entrant trainees

Focus on increasing the number of

labourers instead of harnessing


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Causes

Demographic decline in number ofentrant trainees

Introduction of new technologies

Changing nature of the construction

markets and demand for new skills

Funding for construction qualifications


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Example Location

Black Country a sub region in WestMidlands is affected by the supply of

skill shortages

Continue declining for next four years


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Solutions

Quality and quantity of trainees inconstruction skill supply chain is

directly affected by education

performance Higher quality primary and secondary

schooling education

Skill supply data management system

for funding decisions


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Solutions continued

New Trades training for constantlychanging construction activities

multiskilling

Black Country Construction and

Building Services Forum established

to eliminate current and future skillsmismatch


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MARKET EQUILIBRIUM

A situation in which the plans of buyers

and the plans of seller exactly mesh


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Supply and Demand graph

Price

Quantity demanded and supplied per unit time

Supply

Demand

EquilibriumPE

QE

-Determines Market price


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Price


Increased

Supply

Demand

Equilibrium -Lower Price

-Lower Quantity

PE

QE

P1

Q1 Q2


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Price


Decreased

Supply

Demand

Equilibrium -Greater Price

-Greater Quantity

QE

PEP1

Q1Q2


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Price


Supply

Increased

Demand

Equilibrium -Higher Price

-Greater QuantityP1

Q1 Q2QE

PE


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Price


Supply

Decreased

Demand

Equilibrium -Lower Price

-Lower Quantity

P1

Q1Q2 QE

PE


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Disequilibrium Due to excess supply or demand

Price

Quantity demanded and

supplied per unit time

Supply

Demand

Excess Supply Price

Quantity demanded and

supplied per unit time

Supply

Demand

Excess Demand


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Conclusion

This principle of demand and supplyanalysis is applicable for all the

transactions that take place,

throughout the world Demand and supply theory will

allocate resources in the most efficient

way possible Knowing the supply and demand

analysis is an absolutely necessity


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Questions?

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