CHAPTER 9. DEMAND and sUPPly MODELLING
CHAPTER 9: DEMAND and SUPPLY MODELLING
1 DEMAND CURVE In general, the demand for a product is dependent upon the specifc unit price that is charged a The selling price falls then the demand will rise a The selling price rises then the demand will fall An inverse relationship between demand and selling price This type of relationship can be represented by
[1] DEMAND CURVE ◼ In general, the demand for a product is dependent upon the specifc unit price that is charged. ❑ The selling price falls then the demand will rise ; ❑ The selling price rises then the demand will fall; ◼ An inverse relationship between demand and selling price. ◼ This type of relationship can be represented by:
a gd= f(p) gd stands for the quantity demanded p stands for the unit price fo is notational shorthand for saying 'depends upon EXample: Cycle Safety-HeImet a a company manufactures and sells a particular type of bicycle safety-helmet. The demand for the company,s product is given by qd=900-30p (9.2) where p is in fs and gd is in units of output per time period
❑ qd = f(p) ◼ qd stands for the quantity demanded ; ◼ p stands for the unit price ; ◼ f() is notational shorthand for saying 'depends upon ‘ ◼ Example : Cycle Safety-Helmet ❑ A company manufactures and sells a particular type of bicycle safety-helmet. The demand for the company's product is given by : ◼ qd = 900 - 30p — — ( 9.2 ) ◼ where p is in £'s and qd is in units of output per time period
Diagram 9.1 Demand curve 1000 00 30 0 0 35 p· price per unit
o How should we define the two axes u In terms of the x-axis, what range is appropriate a How should the x-axis range be calibrated qd 0 0 750 10 15 450 300 300 400 25 500
❑ How should we define the two axes ? ❑ In terms of the x-axis , what range is appropriate ? ❑ How should the x-axis range be calibrated ? p qd qs 0 900 0 5 750 100 10 600 200 15 450 300 20 300 400 25 150 500 30 0 600
SUPPLY CURⅤE Demand curve describes the behaviour of customers a Supply curve presents behaviour about the supplier/manufacturer of the products the quantity supplied and the price of a product that can be captured as follows a gs=g(p) qs stands for the quantity supplied p stands for the price go is notational convenience for saying 'depends upon
SUPPLY CURVE ◼ Demand curve describes the behaviour of customers ◼ Supply curve presents behaviour about the supplier/manufacturer of the products ◼ the quantity supplied and the price of a product that can be captured as follows : ❑ qs = g(p) ◼ qs stands for the quantity supplied ◼ p stands for the price ◼ g( ) is notational convenience for saying 'depends upon
Cycle safety-helmet example, the supply curve as follows s=20 Diagram 9.2 Supply c 700 600 200 0 10 15 p- price per unit
◼ Cycle safety-helmet example, the supply curve as follows : ❑ qs = 20*p
The system of equations looks as follows qd=900-30*p qs=0+20*p Diagram 9.3 Demand and Supply 900 00 70 pe, q9 600 g500 -qd 0 price per unit
◼ The system of equations looks as follows : qd = 900 - 30*p qs = 0+ 20*p
EQUILIBRIUM point: the point of intersection of two curve (pe, ge o At pe, consumers want to buy at this price are able to do so a At ge suppliers are able to sell all and are not left with any unsold stocks EQUILIBRIUM CONDITION a The equality between demand and supply can be written as gd=gs
◼ EQUILIBRIUM point: the point of intersection of two curve ❑ ( pe , qe ) ❑ At pe, consumers want to buy at this price are able to do so. ❑ At qe suppliers are able to sell all and are not left with any unsold stocks. ◼ EQUILIBRIUM CONDITION ❑ The equality between demand and supply can be written as : ◼ qd = qs
Summary, the system of equations of Demand-Supply model o gd 900-30*p(Demand curve gs=0-20"p( Supply curve) qd=gs Equilibrium condition
◼ Summary, the system of equations of Demand-Supply model: ❑ qd = 900-30*p (Demand curve ) qs= 0 -20*p ( Supply curve ) qd = qs ( Equilibrium condition )