Understanding the Basics of Demand and Supply in Economics

1. SECTION TOW Presented by MOHAMED ABD-ELMOHSEN Assistant lecture Economic Department

2. Out line We will review chapter three such as: 1-law of Demand 2- the different between change in demand(shift) & change in quantity of demand 3- law of supply 4 - the different between change in supply (shift) & change in quantity of supply 5 - Market Equilibrium

3. 1- What is the different between change in demand & change of Quantity of demand ? Change in demand (shift) Change in quantity of demand The reason : change in other factor , price The reason : change in price 1. The prices of other goods Substitute of CD demand (increases) Complement demand(decrease ) 2. Expected future prices, (direct) 3. Income, (direct) 4. Population, and (direct) 5 . Preference The law of demand states: Other things remaining the same, the higher the price of a good, the smaller is the quantity demanded.

4. 2- some important Definition Definition Explanation normal good is one for which demand increases as income increases inferior good is a good for which demand decreases as income increases. Substitute good is a good that can be used in place of another good. (coffee& tea- PC & Lap- Complement good is a good that is used in conjunction with another good. ( CD& PC- SUGER& tea- )

5. 3 - What is the different between change in demand & change of Quantity of demand ? Change in supply (shift) Change in the quantity of supply When one of the other factors that influence selling plans changes, there is a change in supply and a shift of the supply curve Such as 1- Prices of productive resources 2- Prices of related goods produced 3- Expected future prices 4- The number of suppliers 5- Technology When the price of the good changes and other influences on selling plans remain the same, there is a change in the quantity supplied and a movement along the supply curve. 1- only price

6. 4:Use graph to explain Market equilibrium: This Graph illustrates the Market Equilibrium 1- about star point(Intersection) QD= QS 2- above this point there is a surplus QS < QD 3- under this point there is a shortage QS > QD This Graph illustrates the Market Equilibrium 1- about star point(Intersection) QD= QS 2- above this point there is a surplus QS < QD 3- under this point there is a shortage QS > QD P QD surplus QS Equilibrium shortage Demand & supply

7. 5- Assume the following market model: QD1990 = 1600 125P QD1991 = 1200 125P QD1992 = 1800 125P QS1990-1992 = 440 + 165P Calculate equilibrium prices and equilibrium quantities in 1990, 1991 and 1992.

8. 5- Calculate equilibrium prices and equilibrium quantities in 1990, 1991 and 1992. QD1990 = QS1990 1600 125P = 440 + 165P 1600- 440 = 165p +125p 1160=290p p= 4 Compensation in: QD1990 = 1600 125P So QD1990= 1100 QD1991 = QS1991 1200 125P= 440 + 165P 1200-440= 165p+125p 760= 290p P= 2.6 Compensation in: QD1991 = 1200 125P QD1991= 872.4 QD1991 = QS1991 1200 125P= 440 + 165P 1200-440= 165p+125p 760= 290p P= 2.6 Compensation in: QD1991 = 1200 125P QD1991= 872.4

9. Cont.. QD1992 = QS1992 1800 125P = 440 + 165P 1360= 290p P=4.6 Compensation in: QD1992= 1800 125P QD1992= 1225

10. 6- The table sets out the demand and supply schedules for tomato: Price (cent per crate) Quantity demanded (Million) Quantity supplied (Million) 50 160 130 60 150 140 70 140 150 80 130 160 90 120 170 100 110 180 a. Draw a graph of the tomato market and mark in the equilibrium price and quantity b. If the price is 50 cents a crate, is there a shortage or a surplus, and how does the price adjust ? c. If the quantity of tomato that people want to buy increased by 40 million crates per week at each price , how does the demand of tomato change? Explain ? d. If a virus destroys tomato and the quantity of tomato produced decreases by 30 million crate a week at each price , how does the supply of tomato changes? Explain ?

11. 6( a&)- Draw a graph of the tomato market and mark in the equilibrium price and quantity ? 6(B)- If the price is 50 cents acrate, isthere a shortage or a surplus, and how does the price adjust ? We note from this chart Equilibrium price = 65 Equilibrium Quantity= 145 B) if P = 50 , Its shortages about 30 millions

12. 6(C) - If the quantity of tomato that people want to buy increased by 40 million crates per week at each price, how does the demand of tomato change? Explain Price = 85 , Q= 165 Price (cent per crate) Quantity demanded (Million) Quantity supplied (Million) NEW DEMAN D 50 160 130 200 60 150 140 190 70 140 150 180 80 130 160 170 90 120 170 160 100 110 180 150

13. 6(D)If a virus destroys tomato and the quantity of tomato produced decreases by 30 million crate a week at each price , how does the supply of tomato changes? Explain ? Price = 80 , Q= 130 Price (cent per crate) Quantity demande d (Million) Quantity supplied (Million) NEW SUPPLY 50 160 130 100 60 150 140 110 70 140 150 120 80 130 160 130 90 120 170 140 100 110 180 150