Understanding the Supply & Demand Curve

This time we will discuss the supply & demand curve, starting from the types, laws, examples and conclusions. Happy reading friends ..

 

Table of contents :

Definition of Request

Demand Curve

Request Type

  1. Based on Purchasing Power
  2. Based on the amount that made the transaction

Factors Affecting Demand

Factors That Shift the Demand Curve

Demand curve & list:

Definition of Offer

Bidding law

Offer Law Exceptions:

Factors affecting supply:

Supply curve

Market Demand & Supply Balance

Changes in Market Equilibrium:

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Definition of Request

Demand is the desire of consumers to buy goods at various price levels during a certain period of time. In short, demand is the number of goods demanded in a particular market at a certain price level at a certain level of income and within a certain period.

 

Demand Curve

In economics, a demand for a good will increase if the price falls.

 

The demand curve is a depiction of the statement which is put into a picture to make it easier to understand.

 

This curve has a negative gradient / slope / slope, meaning that the slope on this curve decreases from top left to bottom right. This shows that the relationship between price and demand is inversely related.

 

Request Type

demand and supply curves

 

The types of requests are divided into 2 parts, namely as follows:

 

  1. Based on Purchasing Power

Demand is effective

Effective demand is a demand for goods or services accompanied by purchasing power. In this type of demand, a consumer really needs the item and he can afford it.

 

Absolute demand

Absolute demand is a demand for goods or services that is not accompanied by purchasing power. In this absolute demand, consumers do not have the ability (money) to buy the goods they want.

 

For example , Hanif wants to buy a pair of soccer shoes. However, Hanif had not enough money to buy these soccer shoes. therefore, Hanif’s desire to buy soccer shoes could not be fulfilled.

 

Potential demand

Potential demand is a demand for goods or services accompanied by purchasing power, but consumers are still considering the transaction.

 

For example , Pak Bagas actually has enough money to buy a television, but he doesn’t have the desire to buy it yet.

 

  1. Based on the amount that made the transaction

Individual request

Individual demand is someone’s request for goods or services to meet their daily needs.

 

For example , a housewife buys fish and rice for lunch with her family.

 

Group requests

Group demand is a request from a group of people or society for goods / services that occur simultaneously.

 

Example:

 

In the old kebayoran market, the buyer is the demand, while the seller is the supply. When a transaction occurs between a buyer and a seller, both of them will agree to make a transaction at a certain price which may be the result of tough bargaining.

Melisa can afford to buy 3 magazines every month at Rp. 15,000 and she can buy 5 magazines every month at Rp. 10000.

Also Read:   Understanding the International Balance of Payments

Sounds of Demand Law

 

If the price of a good increases, the quantity of goods demanded will decrease, on the other hand, if the price of a good decreases, the quantity of goods demanded will increase, ceteris paribus.

(will apply assuming other factors other than price are considered constant)

P increases Qd falls

P falls Qd rises ceteris paribus

Does not apply to giffen goods, speculation, and prestige

 

Demand Function:

Qd = a –bP

Where:

Qd = Quantity of goods demanded

a = Kostanta (representing factors outside of constant prices)

b = coefficient (marked negative because the relationship between price and demand is negative

P = price

 

Example:

Given the demand equation: Qd = 15–3P

The demand equation is a linear equation (straight line) so that it

takes two points to draw the equation into a curve or graph.

If Qd = 0 P = 5

If P = 0 Qd = 15

 

Exceptions to the Law of Demand:

  • Goods that have an element of speculation.
  • Prestige

items · Giffen items

 

Factors Affecting Demand

The price of the good itself If the price of an item is getting cheaper, the demand for that item will increase.

The price of other related goods has an effect if there are 2 interrelated goods whose linkages can be substitutes (substitutes) and complementary (fulfill).

Per capita income level Can reflect purchasing power. The higher the income level, the stronger the purchasing power, so that the demand for an item increases.

Taste or habit The level of demand is determined by the tastes or habits of a society’s lifestyle.

Total population The greater the number of people who have a taste or habit of the need for certain goods, the greater the demand for these goods.

Estimating future prices When we predict that the price of an item will increase, it is better to buy the item now, thus encouraging people to buy more now in order to save on future purchases.

Income distribution The level of income per capita can give wrong conclusions if the income distribution is poor. If the income distribution is poor, it means that purchasing power is generally weak, so that the demand for an item decreases.

Producers’ efforts increase sales. The persuasion of sellers to buy goods has a huge role in influencing society. Promotional efforts to buyers often encourage people to buy more than usual.

Also Read:   Financial Ratio Analysis

Factors That Shift the Demand Curve

Factor price Changes along the demand curve apply when the price of the good demanded becomes higher or lower.

Non-price factors The demand curve moves when Changes along the demand curve apply when the price of the goods demanded becomes higher or lower, right or left if there are changes to demand caused by non-price factors, if the price of another good, income buyers and various other non-price factors experience changes, so that change will cause the demand curve to move to the right or to the left.

Demand curve & list:

demand curve

 

demand schedule curve

 

Definition of Offer

The definition of penarawan is a number of goods and services available in the market for sale at various price levels and certain times.

 

Bidding law

An increase in the price of goods / services will cause the supply of these goods / services to increase and vice versa, assuming other factors are considered constant.

If there is an increase in price changes assuming all other variables are constant, then the amount supplied will increase. Likewise, vice versa,

If there is a change in price down, assuming all other variables are constant, then the amount supplied will decrease.

In economics this is known as the law of supply, where there is a positive correlation between the amount offered for a product and its price.

If this is illustrated, a supply curve will be obtained that starts from the bottom left to the top right (Figure 2.4).

The supply curve shows the quantity supplied for a product at various price levels, while other factors are considered constant.

Offer Law Exceptions:

Backward bending supply

Decreasing cost supply

Constant cost supply

Increasing costs and decreasing income

Fixed (perfectly in-elastic) deals and rental issues

Dynamic situation case

Divergent oscillations

Immortal oscillation

Non linear oscillation

Factors affecting supply:

Apart from the price of the item itself, several other factors that influence demand are:

 

Production

costs The level of production costs affects the ability to produce and the selling price of goods, so it affects the amount of supply.

Technology

The more sophisticated the technology used, the more efficient the production so that the quantity offered can be increased.

Expectations of future prices

If the producer predicts that prices will increase during the board period, the current supply will be reduced and the goods / services are hoarded for sale in the future with the expectation of increased profits.

Also Read:   Cost Behavior Analysis

Supply curve

Supply curve is a curve that describes the function between the price and the quantity of goods / services supplied.

 

Changes in the price of goods / services themselves will affect the movement along the supply curve (figure 1), while changes in other factors will affect shifts in the demand curve (Figure 2).

 

Image 1 :

 

bidding A

Description: an increase in price causes supply to increase from A to B

 

Figure 2:

 

bidding B

 

Note: An estimate of a future increase in price reduces the quantity supplied today (from A to B).

 

Market Demand & Supply Balance

In economics, the equilibrium price or the equilibrium price is the price formed at the intersection of the demand curve and the supply curve.

 

The formation of a price and quantity balance in the market is the result of an agreement between buyers ( consumers ) and sellers ( producers ) in which the quantity demanded and supplied is the same.

 

If this balance has been reached, usually this balance point will last a long time and become the benchmark for the buyer and the seller in determining the price.

 

Changes in Market Equilibrium:

Changes in market equilibrium occur when there is a change in the demand and / or supply side. If the factor that caused the change was price, the balance will return to the starting point.

 

But if what changes are ceteris paribus factors such as technology for the supply side, or income for the demand side, equilibrium does not return to square one.

 

market balance

 

A type of good is said to be in equilibrium if the quantity of goods demanded in the market equals the quantity of goods offered.

 

Mathematically and graphically, this is indicated by the similarity of Qd = Qs, which is at the intersection of the demand curve and the supply curve. In this position of market equilibrium, the equilibrium price and the equilibrium quantity are created .

 

Equilibrium market:

Qd = Qs

Qd: quantity demanded

Qs: quantity supplied

E: equilibrium point

Pe: Equilibrium price

Qe: equilibrium quantity

 

Market Failure:

 

Information imperfect ( incomplete information )

Monopoly power ( monopoly power )

Externalities ( externality )

Public goods ( public goods )

Goods altruism ( altruism goods )

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