Grade 10
Grade 10
Grade 10
Price of co e
in birr (per
0 5 10 15 20 25 30 35 40 45
KG
Quantity
demanded
9 8 7 6 5 4 3 2 1 0
is a demand schedule, a table that shows the relationship between the price of coffee per kg and the quantity of coffee
demanded per kg. It shows how the quantity demanded of the good (coffee) changes as its price varies, ceteris paribus (all other
things remain constant).
A demand curve is a curve that represents the relationship between the quantity of the good chosen by a consumer and the
price of the good. The independent variable (price) is measured along the vertical axis, and dependent variable (quantity) is
measured along the horizontal axis.
Demand function is a mathematical relationship between price and quantity demanded, all other things remaining the same.
A typical demand function is given by: Qd=f(P) where Qd is quantity demanded and P is price of the commodity, in our case price of
orange.
Example: Let the demand function be Q = a+ bP
2.1.2 Factors affecting demand
Determinants of demand are factors that cause the consumer to increase or decrease their demand for a particular commodity.
There are various factors affecting the demand for a commodity. Some of these are:
I. Price of the product
II Taste or preference of consumers
III Income of the consumers
IV Price of related goods
V Consumers expectation of income and price
VI Number of buyers in the market
2.1.3 Changes in quantity demanded and changes in demand
Other things being equal, it designates the movement from one point to another point from one price quantity combination
to another on a fixed demand schedule or demand curve. The cause of such a change is an increase or decrease in the price
of the product being considered. Downward movement along the demand curve is called an extension of demand, while the
upward movement is a contraction of demand.
Change in Demand: A change in one or more of the determinants of demand (other than their own price) will change the
demand data (the demand schedule). A change in the demand schedule, or more graphically, a shift in the location of the
demand curve, is called a change in demand. An increase in demand causes the demand curve to shift upward to the right;
whereas, a decrease in demand causes the demand curve to shift downward to the left. In other words, while an increase in
demand is explained by an outward shift of the demand curve, a decrease in demand is explained by an inward shift of the
demand curve.
• 2.1.4 Derivation of market demand
• Based on the number of consumer, demand is classified as individual demand and market demand Individual Demand:
Individual demand may be defined as the quantity of a commodity that a person is willing and able to buy at given prices
over a specified period of time.
• E.G Suppose Mr. Adamu purchases a kg of banana when the price is Birr 25, and he purchases 2 kg for a week when the price
drops to Birr 20. And when the price further decreases to Birr 15 per kg, he buys 3 kg banana for a week, but when the price
rises to Birr 30 per kg, he buys zero kg of banana.
• This can be shown in the table 2.2 below.
Quantity 0 1 2 3 4 5 6 7 8 9
supplied (in
kg)
The supply curve: is a graphical depiction of the supply schedule. Plotting each pair of values from the supply schedule in the table.
The curve is, more or less functional in accordance with the law of supply, which states that, in general, the higher the price of a
good, the greater the quantity of the good suppliers are willing and able to make available in the market.
The slope of a supply curve: the Law of supply expresses the direct relationship between the prices of a commodity and its quantity
supplied. Price and supply are positively related. Hence, the slope of the supply curve is positive.
2.2.2 Changes in quantity supplied and changes in supply
A change in quantity supplied: as we stated earlier, as the price of a goods increases, the quantity supplied increases. We call this
kind of movement along the supply curve a “change in quantity supplied.” Thus, movement along the supply curve is caused by a
change in the commodity’s own price. In such a situation, the supply curve remains the same. Other things being constant, the
movement along the (same) supply curve is caused by a change in the price of the good.
Change in supply: this kind of change refers to a shift in the position of the supply curve caused by a change in something other
than the commodity’s own price. A shift in the supply curve may be caused by change in the prices of other goods, a change in the
prices of factors of production, a change in production technique or a change in the goals of the producer.
2.2.3 Factors affecting supply
Apart from the change in price which causes a change in quantity demanded, the supply of a particular product is determined by:
I. Price of inputs ( cost of inputs)
II. technology
III . prices of related goods
IV. sellers‘ expectation of price of the product
V. taxes & subsidies
VI. number of sellers in the market
VII. weather, etc.
2.2.4 Derivation of the market supply curve
market supply in a given market is the summation of the individual suppliers in that market.
market supply is the horizontal summation of the individual supply curves .
Example: Suppose there are 120 sellers of potatoes (in tons) in a market and the sellers have a more or less similar supply
curve of the form (supply equation) Qs = 20p - 5. Driven by the market supply equation. What is the quantity supplied in the
market when the price is Birr 4?
Solution: i. Market supply is
Qm = Qs x 120 = 120 (20p - 5)
Qm = 2400p – 600 (market supply equation).
ii. Total quantity (market) supplied at price Birr 4 is;
Qm (p=4) = 2400 (4) – 600 =9600 - 600 = 9000 tons