Demand Analysis
LECTURE 2
WHY DEMAND (NOT SUPPLY OR MARKET) ANALYSIS?
Definition of the market
the place where at a given time an exchange was
carried out between the suppliers and recipients
2. an agreement between sellers and buyers in which
the supply, through the sellers’ activities, and the
demand, through the buyers’ activities, determine
the price at which the transactions are concluded
1.
Supply and demand definition
 Supply - quantity or value of goods and services
offered for sale at a given price at a specified time
 Demand - quantity or value of goods and services
purchased by the buyers at a given price at a
specified time
The law of demand and supply
 The law of demand - an increase in the price of a
specific commodity will cause, with constant nonprice factors, a decrease in the demand for the
commodity, whereas the decrease in price will
increase the demand.
 The law of supply- the supply grows with the
increase in price and vice versa
 The demand and supply relationship is the essence
of the market mechanism
Why demand (not supply) analysis?
 Why when analysing the market we mainly focus on
analysis of the demand?
 Because supply depends on how much the analysed
goods or services are needed
 In the case when the demand is insufficient, we
reduce the production in order to not be exposed to
losses. In the case of growing demand we are usually
able to increase the production
Problems and projects 1
Using the demand schedule below, plot the demand
curve on the graph. Label the axes and indicate for
each axes the units being used to measure price and
quantity
Price, $
quantity demanded, 1000 bushels of soybeans
7,2
10
7,0
15
6,8
20
6,6
25
6,4
30
6,2
35
Problems and projects 1
Using the supply schedule below, plot the supply curve
on the graph. Label the axes and indicate for each axes
the units being used to measure price and quantity
Price, $
quantity supplied, 1000 bushels of soybeans
7,2
40
7,0
35
6,8
30
6,6
25
6,4
20
6,2
15
Answer the questions
 The equilibrium price of soybeans will be
$...............................
 ……………………………………thousand bushels of
soybeans will be exchanged at this price
Self –test
1.
A market is any arrangement that brings the buyers and sellers of a particular
good or service together
yes
no
2.
Demand is the amount of a commodity or service which a buyer will purchase at a
particular price
yes
no
3.
The law of demand states that as price increases and other things being equal, the
quantity of the product demanded increases
yes
no
4.
If price falls, there will be an increase in demand
5.
The equilibrium price of a good is the price at which the demand and the supply
of the good are equal
yes
no
6.
The relationship between price and quantity in the demand schedule is a direct
relationship
yes
no
7.
The relationship between price and quantity in the supply schedule is an indirect
relationship
yes
no
8.
A market is any arrangement that brings the buyers and sellers of a particular
good or service together
yes
no
R.C. Bingham, p. 26-27.
yes
no
Questions
An example of the market where place of transaction
can be easily/hardly specified
Which side of the market: demand, supply is
characteristic for the buyers/sellers?
Supply/demand low says that if price grows then
supply/demand grows too
The main reason for excluding supply from our
analyses is the fact that supply depends on demand