the origin of law of demand and supply

john Locke

philosopher that is credited with one of the earliest written descriptions of economic principle published in 1691

john Locke

the concept of supply and demand was part of discussion about interest rate in 17th century

john Locke

wrote “the price of any commodity rises or falls by the portion of the number of buyers and seller”

sir james Stuart

first use the term demand and supply in 1796

sir james Stuart

concerns was the impact of demand and supply on laborers

adam Smith

father of economics

adam smith

explain the concept of demand and supply as an invisible hand

invisible hand

the automatic pricing and distribution mechanism in the economy

alfred marshall

in 1890 , develop a demand and supply curve

alfred marshall

in history , if the price of particular product increases people will buy a less , but marshall noted that in real life , this behavior was not always true

IBN Taymiyyah

an islamic scholars i 300 years before locke aforementioned publication

IBN Taymiyyah

discuss how prices are determined by demand and supply and not by the unjust action of people involved in the transaction

demand

the willingness and ability of buyers to purchase different quantities of good

desire , the resources or money and willingness

to have an effective demandto have an effective demand

law of demand

inverse relationship between price and quantity demanded

functions in law of demand

• change in price of related goods

• change in income of the consumer

• no change in taste and preferences of the consumer

• no change in climate and season

• no change in size and composition of population

• no change and expectations regarding future prices

three reason in the law of demand

1. substitution effect

2. income effect

3. law of diminishing utility

substitution effect

rise in price leads to decrease in quantity demanded

income effect

chris of price have a huge impact on purchasing power

law of diminishing utility

price needed to decrease for additional satisfaction and to increase the quantity demanded

four ways to present the law of demand

1. in words

2. in symbols

3. in demand schedule

4. as a demand curve

demand schedule

the tabular or numerical representation of different combination of prices and quantity demanded

demand function

mathematical it's function is a symbolic representation of the relationship between dependent variables and independent variables

demand function types

1. linear demand function

2. nonlinear demand function

linear demand function

service remain constant

linear demand function can be expressed as

Qx = a-bPx

nonlinear demand function

curve changes all along its length or at different point on a given demand curve

nonlinear demand curve can be expressed as

Qx = aPx ^-b

change in quantity demanded

a movement along the demand curve

two types of change in quantity demanded

1. expansion

2. contraction

expansion in demand

rightward or downward movement

expansion in demand

goods rises just because the price of the product decreases

contraction in demand

leftward or upward movement

contraction in demand

goods falls just because the price of the product increase

change in demand

change of determinants or shifter of demand other than the price of the product

two types of change in demand

1. increased in demand

2. decrease in demand

increase in demand

rightward or outward shift

increase in demand

happen without changes in price is due to the change in determinants or factors of demand

decrease in demand

leftward or inward shift

decrease in demand

determinants or shifter of demand

1. preferences

2. number of buyer

3. price or related goods

4. income

5. expectation of future price

types of related goods

1. substitutes

2. compliments

normal good

demand of good rises as the income rises

inferior good

demand of goods falls as income rises

supply

the willingness and ability of seller to produce and offer to sell different quantities of a good

law of supply

quantity supply is directly related to the price

assumption of law of supply

• no change in state of technology

• no change in price of inputs

• no change in number of producers

• no change in the goal of the firm

• the price of other goods remain constant

• no change in in government policies variable

supply schedule

table that shows the relationship of how much the seller or producer willing to supply at a particular price

supply curve

graphical or diagrammatical presentation of the combination or relationship between price and quantity supply

supply function

the mathematical function relationship between determinants or all factors affecting supply as an independent variable and supply of goods or services as the dependent variable

supply function types

1. linear supply function

2. nonlinear supply function

linear supply function

slope of the supply curve is remain constant

nonlinear supply function

slope of supply curve changes at different points

determinants or shifter of supply

1. price of resources

2. technology

3. government involvement

4. number of seller

5. expectation of future

change in supply

change in supply curve of community due to change in determinant except the price of the commodity

two types of change in supply

1. increase in supply

2. decrease in supply

increase in supply

rightward or outward shift

increase in supply

the supply of commodity is more due to positive change in terminal of supply

decrease in supply

left ward or inward shift

decrease in supply

the supply of commodity is less due to negative or unfavorable changes in determinants other than price

change in quantity supplied

when there's a change in quantity supply of goods or products due to change fries while determinants or shifters of supply remain constant

two types of change in quantity supplied

1. expansion supply

2. contraction supply

expansion supply

rightward or upward movement

expansion supply

when quantity supplied of a good rises or increases due to the rise in its price while the other things remain constant

contraction supply

leftward or downward movement

contraction supply

price of good falls which result to contract or decrease of quantity supply of the commodity while the other things remain constant

equilibrium

rest

equilibrium

quantity combination from which buyers or sellers do not tend to move away

equilibrium

interaction point of the supply and demand curveinteraction point of the supply and demand curve

surplus

quantity supplied is greater than quantity demanded or excess supply exist

shortage

quantity demanded is greater than quantity supplied or excess demand exists

equilibrium quantity

quantity that corresponds to the equilibrium price

disequilibrium price

price at which quantity demanded is not equal to quantity supplied