Presented By

.
Aruna Mahat

Introduction
Demand

Demand curve is a graphical representation between

price and quantity demanded. Its slope is negative
showing that when price increases, then quantity
demanded declines
Supply

The relationship of price and quantity supplied can be

exhibited graphically as the supply curve. The curve is
generally positively sloped

Cont.
Figure of demand

Figure of Supply

Supply and Demand

Supply*
Price
of
Chicken

Intersection of demand & supply

determines the price of the product in
the free economy market.
Rs 200

Demand*

100

Qd=Qs

Quantity of Chicken

Supply and Demand

Demand INCREASES
Supply*
Price
of
Chicken

NOW: Something in this

Market causes DEMAND
To INCREASE by 50%.
Rs.200

Demand*

100

Qd=Qs

Quantity of Chicken

Supply and Demand

Demand INCREASES
Supply*

+50%

Price
of
Chicken

Rs.300

This means that at EVERY GIVEN

PRICE relative to Demand* the
Quantity Demanded is going to be
50% more.

+50%

Rs.200

+50%

Rs.150

Demand*
50

75

100

Qd=Qs

150

Quantity of Chicken

225

Demand 1

Supply and Demand

Demand INCREASES
Supply*

RS 300

Now we have a NEW Demand Curve

Demand 1
The Demand Curve has
shifted to the RIGHT

Price
of
Chicken
Rs.200

Rs150

Demand*
50

75

100

Qd=Qs

150

Quantity of Chicken

225

Demand 1

Supply and Demand

Demand INCREASES
Supply*
Price
of
Chicken

Rs300

Lets assume for the moment

that the PRICE does NOT
change in reaction to this
INCREASE in DEMAND

Rs 200

Rs150

Demand*
50

75

100

Qd=Qs

150

Quantity of Chicken

225

Demand 1

Supply and Demand

Demand INCREASES
Supply*
Price
of
Chicken

Rs 300
At a price of Rs200 the Quantity
Demanded is going to be 150 BUT at
a price of Rs200 there is still going to
be a Quantity Supplied of 100. OUR
MARKET IS IN DISEQUILIBRIUM!!

Rs 200

Rs150

Demand*
50

75

100

Qd=Qs

150

Quantity of Chicken

225

Demand 1

Supply and Demand

Demand INCREASES
Supply*
Price
of
Chicken

Rs300

Why are Producers NOT going to

supply 150 units at Rs200?
Because to produce that
additional 50 units it is going to
cost them more in labor,
materials, etcTo produce the
additional 50 units they are going
to have to get a higher price!!!

Rs 200

Rs 150

Demand*
50

75

100

Qd=Qs
Qs-100

150
Qd=150

Quantity of Chicken

Demand 1

225
Notice: Quantity Demanded
Is greater than Quantity Supplied
At this price

Supply and Demand

Demand INCREASES
Supply*
Price
of
Chicken

Rs300
We have a SHORTAGE in the
Market!
How do we eliminate this
SHORTAGE?

Rs.200

Shortage

Rs150

Demand*
50

75

100

Qd=Qs
Qs-100

150
Qd=150

Quantity of Chicken

Demand 1

225
Notice: Quantity Demanded
Is greater than Quantity Supplied
At this price

Supply and Demand

Demand INCREASES
Supply*
Price
of
Chicken

Rs.300

This is where it is crucial to

understand the difference between a
CHANGE in DEMAND or Supply vs. a
CHANGE in Quantity Demanded or
Quantity Supplied

Rs.200

Rs.150

Demand*
50

75

100

Qd=Qs
Qs-100

150
Qd=150

Quantity of Chicken

Demand 1

225
Notice: Quantity Demanded
Is greater than Quantity Supplied
At this price

Supply and Demand

Demand INCREASES
Supply*
Price
of
Chicken

Rs.300

Because there is a SHORTAGE in

this market, the pressure on the
price of the chicken is going to be
UPWARD.
Lets assume the Price
INCREASES to Rs 300

Rs.200

Rs.150

Demand*
50

75

100

Qd=Qs
Qs-100

150
Qd=150

Quantity of Chicken

225

Demand 1

Conclusion
In conclusion there is inverse relationship between
price and demand of the chicken. But with supply there
is positive relationship. When the shortage of the
product in the market, it doesnt only increases the
demand of those product but also increases the price
of the products in order to maintain the market
mechanism.

Any Queries ???