CHPATER 2: THE DEMAND AND THE SUPPLY THEORY

DEFINATION:
DEFINATION OF DEMAND DEFINATION OF SUPPLY

Demand is had a ability and Supply can be defined as the

willingness to buy a specific quantities of goods that
quantities of goods in a given producer is able and willing to
period of time at a particular sell at a certain price in a given
price, ceteris paribus peirod of time

LAW OF DEAND AND SUPPLY:

LAW OF DEMAND LAW OF SUPPLY

- The higher the price of goods, - The higher the price of a

the lower is the quantity goods, the greater is the
demanded quantity of supplied

- The lower price of goods, the - The lower the price of a goods,
higher is the quantity of the smaller is the quantity of
demanded supplied
LAW OF DEMAND (GRAPHICAL)
LAW OF DEMAND LAW OF SUPPLY

The original price of goods is RM2, The original price of the goods is RM2,
while the original quantity of demanded while the original quantity of supplied for
for those goods is 4 units. When the those goods is 4 units. When the price
price increases to RM3, the quantity of increases to RM3, the quantity of
demanded for those goods decreases supplied for those good will increases to
to 2 units. When the price decreases to 6 units. When the price decreases to
RM1, the quantity of demanded for RM1, the quantity of supplied for those
those goods increases to 6 units. goods will decreases to 2 units

DEMAND AND SUPPLY CURVE

DEMAND CURVE SUPPLY CURVE

The original price of the goods is RM1, The original price of the goods is RM1,
while the original quantity for those while the original quantity for those
goods is 6 units. When the price goods is 2 units. When the price
increases to RM2, the quantity increases to RM2, the quauntity of
demanded for those goods will supplied for those goods will be
decreases to 4 units. When the price increases to 4 units. When the price
increases to RM3, the quantity increases to RM3, the quantity of
demanded for those goods will be supplied for those goods will be
decreases to 2 units increases to 6 units
THERE ARE 2 TYPES OF DEMAND AND SUPPLY WHICH IS:
TYPES OF DEMANDED TYPES OF SUPPLY

1. INDIVIDUAL DEMANDED 1. SUPPLY BY A FIRMS

- The demand of an individual - Supply by a firms is the quantity of
consumers for a specific good at a goods or services that a producers is
certain price in a given period of time able and willing to produce or supply at
a certain price in a given period

The original price of the goods is RM1,

while the original quantity for those The original price of the goods is RM1,
goods is 6 units. When the price while the original quantity for those
increases to RM2, the quantity goods is 2 units. When the price
demanded for those goods will be increases to RM2, the quantity supplied
decreases to 4 units. When the price for those goods is increases to 4 units.
increases to RM3, the quantity When the price increases to RM3, the
demanded for those goods will be quantity supplied for those goods is
decreases to 2 units. increases to 6 units.

2. SUPPLY BY AN INDUSTRY
2. MARKET DEMANDED - Supply by an industry (market) is the
- The quantity of goods demanded by all quantity of goods and services that all
individuals or consumers in a market at firms in an industry or market is able
a certain price in a given period of time and willing to produce at a certain price
in a given period
DEMAND AND SUPPLY FUNCTION
DEMAND FUNCTION SUPPY FUNCTION
Qd = a-bP Qs = c+dP

Find the demand function: Find the supply function:

SKETCH THE CURVE:

DEMAND CURVE SUUPLY CURVE
DETERMINATS OF DEMAND
INTERNAL FACTORS
1. PRICE OF GOODS
- Assuming all other factors is equal or ceteris paribus, change in the price of a
good will affect the quantity demanded of the goods.
- When the price of a goods increases, the quantity of demanded fot the goods
will be decreases. When the proce of the goods decreases, the quantity
demanded for those goods will be increses.
- Relationship between price and the quantity of tea are negative.

When the price of tea increases, the quantity demanded for those goods will be
decreases, On the contrary, when the price of tea decreases, the quantity demanded
fot those goods will be increases.

2. SERVICES POLICIES OR TERMS OF PAYMENT

- Better customer services and terms of payments by credit istead of cash will
increase the sales
- If Domino’s Pizza, for example, offer a better customer services compared to other
fast food oultets, customer would prefer to go to Domino’s Pizza and this increases
the demanded for this products

3. PROFIT MARGIN
- A higher profit margin will lead to an increases in the price of a prooducts and
reduces its demand, and vice versa
EXTERBAL FACTORS
1. PRICE OF OTHER GOODS (\SUBSTITUTE GOODS/ BARANG PENGGANTI)
- A subtitute goods is a goods that can be replaced or substitute the function of
another goods.
- An increses in the price of one of the goods can cause an increases in the demand
for its substitute

- Example goods, tea and coffee

When the price of coffee increases, the quantity demanded for the coffe will be
decreases. Then with this, the demanded for the tea will be increases. On the
contrary, when the price of the coffee decreases, the quantity demanded ofr the
coffee will be increases. Then with this, the demanded fot the tea will be decreases
- The original price for the coffee is P0 and the original quantity demanded for
the coffee is Q0. The original price for the tea is p and the original quantity
demanded for the tea is Q.
- When the price of the coffee increases to P1, the quantity demanded for the
coffee will be decreases to Q1. Then with this, the quantity demanded for the
tea will be increases to Q1. The effects is that the demand curve for the tea
shifts to the right from D0D0 to D1D1
- When the price of the coffee decreases to P2, the quantity demanded for the
coffee will be increases to Q2. Then with this, the quantity demanded for the
tea will be decreases to Q2. The effects is that the demand curve for the tea
shifts to the left from D0D0 to D2D2
2. PRICE OF OTHER GOODS (COMPLEMENTARY GOODS/BARANG
PELENGKAP)
- A complentary goods are a goods that used togather with other goods to complete
the finction of an object.
- An increases in the price of one goods will result in a decreases in the demanded
for its complementary goods

- Example, Car and Petrol

When the price of the car increases, the quantity demanded for the car will be
decreases. Then with this, the quantity demanded for the petrol will be decreeases.
On the contrary, when the price of the car decreases, the quantity demanded for the
car will be increases. Then with this, the quantity demanded for the petrol will also be
increases.
- The original price for the car is P0 and the original quantity demanded for this
car is Q0. The original price for the petrol is P and the origial quantity
demanded for the petrol is Q
- When the price of the car increses to P1, the quantity demanded for the car
decreases to Q1. Then with this, the quantity demanded for the petrol
decreases to Q1. The effects demanded curve for petrol shifts to left from
D0D0 to D1D1.
- When the price of the car decreases to P2, the quantity demanded for the car
increases to Q2. Then with this, the quantity demanded for the petrol will be
increases to Q2. The effects demanded curve for petrol shifts to right from
D0D0 to D2D2
3. PRICE OF OTHER GOODS (UNRELATED GOODS/BARANG XDE KAITAN)
- Unralted goods are the goods that do not influence and don’t have any relationship
with consumption of other goods.
- An increase in the price of one goods, the demand for other goods will remain
unchaged

4. POPULATION SIZE AND STRUCTURE (KEDUDKAN ORANG RAMAI)

- As the population rises, the demand for the goods is expected to increase. A
decline popualtion will result in a reduction in a demand
(Apabila populasi meningkat, permintaan untuk barangan dijangka meningkat.
Penurunan penduduk akan mengakibatkan pengurangan permintaan.)
- Population structure such as age, gender and race also influence the demand.
- Example of goods: baju kurung
5. PREDICTION ABOUT FUTURE PRICES
- A higher expected future price will increase the current demand. A reduction in the
expected futute price will decreases the current demand.
- Example of the goods: emas/gold

6. GOVERNMENT POLICIES
- Government poliices can influence demang through taxation and subsidies
- When the government increases taxation rated on the ikported goods, there will be
reduces on the demand for imported goods due to increases price. However, if the
government reduve the taxation on imported goods, there will be increases on the
demand for imported goods due to increases price.
- When the government subsidies the production of goods, the demand of the goods
will increase. This is because the prices of the goods will be increases due to the
subsidy.
- Example of the goods: kereta dan barang keperluan
7. CONSUMER HOUSEHOLD INCOME (NORMAL GOODS/BARANG NORMAL)
- There is positive relationship between consumer income and the quantity
demanded for the normal goods
- When a consumers income increases, the demand for those goods will also
increase and vice versa
- Example of the goods: Shirt

8. CONSUMER HOUSEHOLD INCOME (INFERIOR GOODS/BARANG BURUK)

- Inferior or giften goods are normally of poor quantity and they constitue a large part
of the poor man’s expenditure
(Barangan yang lebih rendah atau giffen biasanya mempunyai kuantiti yang lemah
dan ia merupakan sebahagian besar daripada perbelanjaan orang miskin)
- There is inverse relationship between consumers income and the quantity
demanded for the inferior goods.
- When a consumer’s income increases , the demand for a giffen goods will also
decreases and vice versa
- Example of goods: broken rice
9. CONSUMER HOUSEHOLD INCOME (ESSENTIAL GOODS/BARANG
KEPERLUAN)
- Demand for essential goods will not affected by changes in the consumers income.
- This is because everyone needs food to survive, regardless of whether the
consumer is wealthy or poor.
DETERMINE OF SUPPLY
1. PRICE OF GOODS
- Assuming all others factors is equal and ceteris paribus, change is the price will
affect the quantity supplied for the goods.
- When the pirce of the goods increase, the quantity supplied ofr those goods will
also be increases and vice versa
- Example of goods: kereta proton

2. PRICE OF OTHER GOODS (SUBSTITUTE GOODS/BARANG PENGGANTI)

- A substitue goods is a goods that can be replace or substitute the function of
another goods.
- An increase in the price of one goods can cause an decreases in the supply for its
substitute
- Example of the goods: Kereta proton Axia and persona
3. PRICE OF OTHER GOODS(COMPLEMENTARY GOODS/BARANG
PELENGKAP)
- A complementary goods are a goods that are used togather with other goods to
complete the funtion of object
- An increases in the price of one goods will result in a increases in the supply for its
complementary goods.
- Example of the goods: tayar kereta dan kereta

3. NUMBER OF PRODUCER
- The number of the producer in the industry will influence the supply. The more firms
or producers in the industry, the more supply will be offered and vice versa
4. WEATHER
- Weather condition such as storms, winds, and floods will affect the supply of goods
from certain industries such as fishing
CHANGES IN QUANTITY DEMAND AND SUPPLY
CHANGES IN QUANTITY DEMAND CHANGES INQUANTITY SUPPLIED

CHANGES IN DEMAND AND SUPPLIED

CHANGES IN DEMAND CHANGES IN SUPPLY
EXCEPTIONAL CURVE DEMAND AND SUPPLY CURVE UPPER PART
DEMAND CURVE UPPER PART SUPPLY CURVE UPPER PART

EXEPRIONAL CURVE DEMAND CURVE LOWER PART