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Demand and Supply Analysis Course teacher: Md. Moudud Hasan Saikot
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Course teacher: Md. Moudud Hasan Saikot Q. What is law of demand? The law of demand states that, other things equal, the quantity demanded of a good falls when the price of the good rises. Q. The price and quantity demanded of a good are given as follows. Price of Ice-Cream Quantity of Ice-Cream Demanded $0.00 12 0.50 10 1.00 8 1.50 6 2.00 4 2.50 2 3.00 0 Draw a demand curve from this schedule. Answer: Figure 1: Demand Curve
Q. Describe the factors that shift market demand. Ans: Many variables other than price can influence market demand. a. Income: There are two types of good related to income, i. Normal good : A good for which the demand increases as income rises and decreases as income falls. Example for: Car. ii. Inferior good : A good for which the demand increases as income falls and decreases as income rises. Example for, Public Transport. b. Price of related goods: Based on price of related goods the products may be divided into two parts, i. Substitutes Goods : When price of one good increase then quantity of other good increases. Example for, tea and coffee. ii. Complementary Goods : When price of one good increase then quantity of other good falls. Example for, White board and Marker. c. Tastes: Consumers can be influenced by an advertising campaign for a product. d. Population and demographic: If there is more population, then demand for a good will increase. e. Expected Future Prices: If consumer expect that the price may increase in future, then they want to buy more of the product at present time. Q. What is law of supply? The law of supply states that, other things equal, the quantity supplied of a good rises when the price of the good rises and vice versa. Q. What is market equilibrium? Explain it graphically. Market equilibrium is a stable situation in which quantity demanded of a good equals quantity supplied of that good. Mathematically, ๐๐ = ๐๐
Q. The demand and supply functions of a market are as follows: ๐๐ = ๐๔๔ โ ๐๐ฐฐ ๐๐ =โ ๐๔ + ๐๐ฐฐ i. Find out equilibrium price and quantity. ii. If price rises (P=41) then what will happen? Solve itโฆ Q. Define consumer surplus and Producer Surplus. Consumer Surplus: Consumer surplus is the difference between the highest price a consumer is willing to pay and the price the consumer actually pays. Producer surplus: Producer surplus is the difference between the lowest price a firm would have been willing to accept and the price it actually receives. Graphically, Q. The WTP of a commodity is $35 and WTS is $20. But the equilibrium price and quantity of that commodity is $30 and 10 units respectively. i. Find consumer surplus, producer surplus. ii. Find total surplus.
i. Consumer Surplus: Consumer surplus will be the area under the demand curve and above the price line. So, ๐๐ =
Producer surplus: Producer surplus will be the area under the price line and above the supply curve. So, ๐ฐฐ๐ =
ii. Total surplus is simply the sum of consumer surplus and producer surplus. So, ๐๐ = ๐๐ + ๐ฐฐ๐ ๐๐ = ๐๐ + ๐๔ = $๐๐ Price (^0) Quantity Demand 10
Consumer surplus Supply Producer surplus
