Week 4 – SS2 First Term Economics Notes

WEEK FOUR
DEMAND AND SUPPLY
CONTENT

• Change in Quantity Demanded
• Change in Demand
• Change in Quantity Supplied
• Change in Supply
• Effects of change in demand and supply on equilibrium price and quant

CHANGE IN QUANTITY DEMANDED
A change in quantity demanded, is otherwise known as movement along a particular demand curve that is only influenced by price. When there is a change in the quantity demanded, the demand curve does not shift. This is because the price of the commodity is the only cause of a change in the quantity demanded while other factors remain unchanged.
Y Price     
D
    
10



         5
         D
x
0 20 30
Quantity

Change in Quantity Demanded
From the above diagram, as the price falls from #50 to #30, the quantity demanded increases from 60 to 80 units,
Hence movement along the same demand curve took place from A to B.
Further decrease or increase in price will also affect the movement along the same
demand curve.
CHANGES IN DEMAND
When different quantities of goods and services are demanded at a particular price, it is called a change in demand. It is caused by those factors that generally affect the demand of a commodity other than the price of the commodity; For example changes in taste and fashion, changes in income etc Change in demand shows a shift of the demand curve to an entirely new position. A shift of the demand curve to the right is termed an increase in demand while a shift of the demand curve to the left is a decrease in demand.

  Price
D2
D1

 
 

D2

  D1

Q1 Q2
Quantity

1. Increase in Demand

  D1 D2
Price

 N10

 
 
 
Q1 Q2
Quantity
(ii) Decrease in Demand

 EVALUTION

1. State three factors responsible for the change in demand.
2. What is change in quantity demand?

 CHANGES IN QUANTITY SUPPLIED
Change in quantity supplied is only influenced by price. It involves movement along the same supply curve
y
     Price S     

  P2

  P₁

             S        

x
Q₁     Q₂    
Quantity
Change in Quantity Supplied

 CHANGE IN SUPPLY
Change in supply is caused by factors other than the price of the commodity. It involves a bodily shift of the supply curve either to the right (increase in supply) or to the left
(decrease in supply
Price Price

      P                    

 
 
 
 
 
 
_{Q2 Q0 Qty}

Qo Q1 Qty     (ii) Decrease in supply
(i)Increase in supply

 EVALUATION

1. What is change in quantity supplied?
2. State the factors responsible for change in supply.

 EFFECTS OF CHANGES IN DEMAND AND SUPPLY ON EQUILIBRIUM PRICE AND QUANTITY
Changes in demand and supply lead to a change in the equilibrium price. Once there is any change in either demand or supply, the initial equilibrium will be disrupted and a new equilibrium will be created. The market equilibrium price can be affected in the following ways.
1.    Increase in Demand
Price    
D2
S
D1
P2

 

P1

  S D2

  D1
Q1 Q2 Quantity

 Effects of increase in demand

1. Increase in the equilibrium price from P₁to P₂
2. Increase in the equilibrium quantity from Q₁ toQ₂

 2.    Decrease in Demand

Price

  D2

    P1


P2

  S D1
D2

Q₂    Q₁     Qty    

 Effects of Decrease in Demand

1. Decrease in the equilibrium price from P₁ to P₂
2. Decrease in the equilibrium quantity from Q₁to Q₂

 3.     Increase in Supply

S1 S2
Price    


P₁

 
P2
S1 D
S2
Q₁ Q₂

Quantity
Effects of Increase in Supply

1. Decrease in the equilibrium price from P₁ to P₂
2. Increase in the equilibrium quantity from Q₁to Q₂

    

4. Decrease in supply

 
 
  Price

 
 
  P2
S2
P1
S1
Q₂ Q₁    
Quantity

Effects of Decrease in Supply

a.    Increase in the equilibrium price from P₁ to P₂
b.    Decrease in the equilibrium quantity from Q₁to Q₂

 

EVALUATION QUESTION

1. What is the equilibrium quantity?
2. Illustrate with a diagrammatic sketch the market situation at a price lower than the equilibrium price”
3. Explain with the aid of diagrams how the market equilibrium price is affected by the combined effects of:
   1. Increase in demand and increase in supply.

   2. Decrease in demand and decrease in supply.
      

   3. Increase in demand and decrease in supply.

 READING ASSIGNMENT
Amplified and Simplified Economic for SSS by Femi Longe page 290–296
Fundamentals of Economics by Anyawuocha page 166-168

 GENERAL EVALUATION QUESTIONS

1. Distinguish between fixed cost and variable cost.
2. Under what condition will a perfectly competitive firm maximize profit.
3. Describe each of the following;

   (a) abnormal demand ( b) Effective demand

4. What is a public corporation.
5. Explain the causes of a declining population.

    

WEEKEND ASSIGNMENT

1. At the equilibrium price, quantity demanded is (a) greater than quantity supplied (b) equal to quantity supplied (c) less than quantity supplied (d) equal to excess supply
2. If the government fixes a price of a commodity above the equilibrium price, the quantity supplied will be (a) less than the quantity demanded (b) equal to the quantity demanded (c) greater than the quantity demanded (d) equal to zero
3. The market price of a commodity is normally determined by the (a) law of demand (b) interaction of the forces of demand and supply (c) total number of people in the market (d) total quantity of the commodity in the market
4. The gap between demand and supply curves below the equilibrium price indicates (a) excess demand (b) excess supply (c) equilibrium quantity (d) equilibrium price
5. If prices fall below the equilibrium (a) demand will equal supply (b) demand will be greater than supply (c) supply will be greater than demand (d) quantity supplied will be zero

 SECTION B

1. Given the demand and supply function for a crate of eggs as follows:

   Qd = 12 –2p; Q = 3+1p
   Determine the equilibrium price and quantity

2. What is the excess supply at the price of N3.50?