NETHERLANDS MARITIME UNIVERSITY COLLEGE

CHAPTER 2 : DEMAND AND SUPPLY

BY : GROUP 3
Name ID

MOHAMMAD AIDIL SAFWAN BIN MOHD NIZAM 1230504838

MUHAMMAD AZIM BIN ROSHIDE 1230504805

MOHAMAD IQMAL HAKIM BIN KUDORI 1230504832

MUHAMMAD NAUFAL BIN ISMAIL 1230504783

MUHAMMAD AKMAL SYARIFUDIN 1230504784

SUBMITTED TO
(MR MUHAMMAD AQMAL BIN JAMIL)
PRINCIPLES OF ECONOMIC
REPORT
 TABLE OF CONTENT

INTRODUCTION…………………………………………………………………….1

LITERATURE REVIEW……………………………………………………………. 2-3

DETERMINANT OF DEMAND…………………………………………………….4-8

INDIVIDUAL AND MARKET SUPPLY……………………………………………9-13

INDIVIDUAL UNDERSTANDING………………………………………………….14-16

CONCLUSION……………………………………………………………………….17

REFERENCE………………………………………………………………………….18
1.0 INTRODUCTION

The fundamental ideas and theories that form the basis of economics research are
referred to as the "principles of economics". These guidelines provide a framework for
comprehending the decisions made by people, organizations, and governments on the
distribution of limited resources in order to satisfy their needs and desires.

Economics' basic notions of supply and demand explain how the amounts and prices
of products and services in a market are established. The amount of a product that producers
are willing and able to offer for sale at various prices within a given time frame is referred to
as supply. Generally speaking, it adheres to the law of supply, which asserts that when a
good's price rises, its supply rises as well, all other things being equal.

The amount of a product that buyers are willing and able to buy at various prices
within a given time frame is known as demand. It usually complies with the law of demand,
which stipulates that when a good's price rises, the quantity demanded falls, all other things
being equal. The equilibrium price and quantity in a market are determined by the
intersection of supply and demand.

These curves can be shifted by modifications in the variables influencing supply and
demand, which can alter market prices and quantities. Comprehending these fundamental
concepts is vital for scrutinizing and forecasting market trends and arriving at well-informed
financial choices.

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2.0 LITERATURE REVIEW

An overview of the literature on the subject of "Demand and Supply" in economics sheds
light on the fundamental ideas, hypotheses, and studies in this area. It investigates how
supply and demand interact to influence pricing and market dynamics. Here is a quick
summary of the main concepts and themes

TYPE OF GOODS AND SERVICES

There are various type of good in basic supply and demand. The first one is free goods,
this type of goods cost no production cost and exist in great quantity.

Secondly is, public goods .this type of good or service offered by the government, a
private person, or an organization that benefits every member of the community.

And lastly is economic goods, which is economic services are jobs carried out for the
benefit of the beneficiaries, while economic goods are tangible products supplied to clients.
Items include clothes, appliances, and cars, to name a few.

DEFINITION OF DEMAND AND LAW OF DEMAND

The concept of "demand" describes a customer's desire to buy a specific good or service. The
desire for a specific good in the market is known as market demand. The entire demand in the
economy for goods and services is known as aggregate demand. Price determination is based
on supply and demand for the good or service.

LAW OF DEMAND

Charles Davenant (1656–1714) originally mentioned the well-known law of demand in his
article "Probable Methods of Making People Gainers in the Balance of Trade (1699)".
However, Gregory King (1648–1712) provided an example of the rule of demand,
demonstrating its knowledge and use far earlier. A fundamental concept of economics is the
law of demand, which states that consumers will demand a lesser quantity of a good at a
higher price.

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DEMAND CURVE

A demand curve is a graph that illustrates how the quantity required within a given time
period and an item's price relate to each other. Demand curves can be used to help consumers
in a given market comprehend the link between price and quantity.

Example;

INDIVIDUAL AND MARKET DEMAND

INDIVIDUAL DEMAND

The concept of "individual demand" describes a person's desire for a good or service. The
relationship between a person's wants and what quantity of goods and services they can
afford determines their individual demand.

MARKET DEMAND

The total quantity of a good or service that buyers are willing and able to buy within a
specific market at a specific price is known as market demand. It stands for the combined
desire and purchasing power of potential consumers
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DETERMINANT OF DEMAND

1.Tastes and trends

 In general, the supply and demand for various goods and services can be greatly
affected by the preferences of the consumer. The change in consumer preferences may
result in modifications to the demand for some products, which may then have an
impact on the supply of those products.
 For example, if consumers start to favor healthier, organic foods, there may be a rise
in demand for these goods.

2. Consumer’s income

 The quantity of a good that a consumer is willing and able to purchase has a positive
relationship with their income; that is, for these goods, high income will result in
increased demand, and lower income will result in a decreased demand.

3. Expectation about future price

 The demand curve will be shifted to the right if consumers predict price increases
and are more likely to purchase now. They will probably to postpone purchases if
they predict lower prices, which will cause the demand curve to move to the left.

4. Advertisement

 Industries can effectively educate consumers about their products through advertising.
They can list the products' best features, highlight how they outperform rival
offerings, or introduce brand-new items to the market. It could increase a customer's
interest in purchasing their products and increase the market for them
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5. Population

 Income levels within a population have an impact on demand because higher income
levels give rise to higher willingness to spend and higher purchase quantities. The
population itself impacts demand because more people mean that more units will be
purchased.

Example;

Price Effect:

 A shift in the cost of the good or service is what basically drives the change in the
quantity requested. Price and quantity demanded have an inverse relationship,
according to the law of demand. The amount needed usually improves when the price
falls and vice versa.
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Movement Along the Demand Curve:

 In response to price changes, buyers decide to buy or less of a given good. As a result,
the current demand curve moves in that position. The quantity required expands
(when the price drops) and contracts (when the price increases) in response to changes
in the price.

Other Factors Constant:

 The idea of a change in amount required is predicated on the assumption that all other
variables, including consumer income, preferences, and the costs of the same
products, won't vary. The demand curve as a whole would shift rather than just
moving along it if any of these variables changed.

Graphical Representation:

 A shift along the demand curve indicates a change in the quantity demanded on a
supply and demand graph. The particular point on the demand curve moves, while the
curve overall stays the same.
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CHANGES IN DEMAND

Example;

Changes in Income:

 A rise in consumer income may cause the demand for everyday products to rise. On
the other hand, when money increases, demand for inferior products may decline.

Substitute Goods:

 A drop in the cost of a replacement good could result in less people wanting the
original good.

Similar Goods:

 A reduction in the cost of a complimentary commodity may raise demand for the
original good.
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Customer Preferences and Tastes:

 Shifts in consumer tastes, which are frequently brought about by advertisements,

trends, or cultural changes, can affect demand. For instance, heightened knowledge of
the advantages to health could result in a greater need for

DEFINITION OF SUPPLY AND LAW OF SUPPLY

A basic economic concept known as "supply" refers to the total quantity of a particular good
or service that is offered to customers. Supply can be defined as the quantity offered at a
given price or, if represented by curve, as the quantity offered across a range of prices.

LAW OF SUPPLY

A basic concept in economics is the law of supply. It says that when the cost of products or
services increases, so does the supply of for them. The quantity of goods or services that
suppliers are willing and able to offer to customers is referred to as supply.

CURVE OF SUPPLY

A curve that shows the close relationship between prices and supply quantity is called a
supply curve. Supply increases in combination with prices.

Example;
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INDIVIDUAL AND MARKET SUPPLY

INDIVIDUAL SUPPLY

a market supply refers to the individual supply schedules of every producer in the industry,
individual supply is the supply of a single producer at every price.

MARKET SUPPLY

The total quantity of goods and services that producers are willing to provide for a specific
period of time at a specific price point or differ is known as the market supply. It stands for
the total of the supply quantities for each and every producer. Market supply is usually
referred to as "supply" in short. Different limitations apply to individual businesses, affecting
their supply curves, cost structures, production schedules, and capacity to manufacture. For
these reasons, a wide range of complex variables may affect an item or service's overall
market supply.

MARKET SUPPLY CURVE

Example;
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3. DETERMINANTS OF SUPPLY

COST OF PRODUCTION

 High production costs might make it more difficult for businesses to swiftly change
their prices, which can result in inelastic demand.
 Low manufacturing costs: Because of the potential for greater pricing flexibility,
demand may be more elastic as a result of lower production costs.

EXPECTED FUTURE PRICE

 Expectation of Price Change: Consumers may be more likely to make purchases today
if they anticipate price increases in the future, making demand elastic.Demand may be
less responsive to recent price adjustments if there is an expectation that prices will
remain consistent.

TECHNOLOGICAL ADVANCEMENT

 As a result of new products or processes that may offer replacements, customers may
be more responsive to price changes, which might increase demand,Stagnant
Technology: Because there are fewer options available in businesses with little
technical advancement, demand may be less elastic.

NUMBER OF SELLERS

 Many Sellers: In a market where there are many competitors, consumers have more
options, which makes demand more elastic because they may switch suppliers
quickly.
 Few Sellers (Oligopoly or Monopoly): When consumers have fewer options, demand
may be less elastic in marketplaces with little competition.
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GOVERNMENT POLICIES

 Price floors or ceilings set by the government may have an impact on elasticity. For
instance, a price cap could cause shortages and reduce the elasticity of demand.

CHANGE IN QUANTITY SUPPLIED

Example;

Price change: The amount offered and a good's price are directly correlated, as stated by the
law of supply. When prices rise, the amount supplied usually rises, and when prices fall, the
quantity supplied usually falls.

 Price Increase: When a good's price increases, producers are incentivized to increase
supply because doing so becomes more profitable.
 decrease in price: On the other hand, if the price drops, producers can find it less
profitable, which could result in a fall in the amount supplied.

Movement Along the Supply Curve:

 The current supply curve is subject to movements as a result of variations in the

quantity delivered. A movement to the right along the supply curve indicates an
 increase in the quantity supplied. A shift to the left along the supply curve suggests a
decrease in the quantity supplied.

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Individual Producer Responses:

 Based on the going rate in the market, each producer is free to modify the amount of a
good they supply on their own. The total quantity supplied is determined by the
reaction of all producers in the market.

CHANGE IN SUPPLY

Example;

A shift in the quantity of an item or service that producers are willing and able to provide for
sale in the market at various prices is referred to as a change in supply. The supply curve is
often shifted to show this change, which can be produced by a variety of different things.

Prices of inputs:
  If the price of inputs (such as labor, raw materials, or energy) falls, producers might
be able to produce more at each price level, leading to an increase in supply. On the
other hand, a rise in input costs could cause a fall in supply.

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Technology:

 Developments in this field have the potential to increase supply by decreasing costs
and increasing production efficiency. On the other hand, a lack of technological
advancement could impede output and reduce availability.

Number of Producers:

 An increase in a market's producer count may result in a rise in the total supply. On
the other hand, if manufacturers leave the market, the supply might drop.

Government Policies:

 Improvements to assessment, subsidies, or regulations may have an effect on the cost

of production and supply. A producer subsidy, for instance, may encourage them to
provide more at a particular price.

Technology:

 Developments in this field have the potential to increase supply by decreasing costs
and increasing production efficiency. On the other hand, a lack of technological
advancement could impede output and reduce availability.

Expectations:

 Producers who anticipate higher prices in the future may cut back on their current
output and stockpile items to sell at the higher prices down the road. On the other
 hand, if they expect lower prices, they might increase the current supply in order to
profit from the high prices.

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INDIVIDUAL UNDERSTANDING

IKMAL (DPM 2)

 What I understand in chapter 2 is that demand and supply are important things in
economics. Demand refers to the willingness and ability of buyers to purchase
different quantities of a good at a deferential price. While supply is the willingness
and ability of sellers to produce.
Next, the classification of goods and services there are three important things
which are free goods, public goods and economic goods. Besides that, I also
understand about the law of demand and the law of supply. Law of demand State that
the higher the price of a good, the lower is the quantity demanded for that good
whereas the law of supply is the higher the price of a good, the greater is the quality
supplied for that good.
Apart from that, I also understand the determinants of demand. Among the
determinants of demand are the price of related goods, consumers' income,
consumers' fashion, population or number of buyers, expectations about future price,
advertisement, level of taxation and supply of money in circulation.
At the same time, I also understand about determinants of price elasticity of
demand. Among the determinants of price elasticity of demand are the price of related
goods, cost of production, expectation about future price, technological advancement,
number of sellers, government policies, and improvements in infrastructure.

AKMAL(DPM 2)

 From my personal standpoint, this topic assist the economists and businesses in
analyzing and predicting market, and assisting producers in producing of a goods or
 service during specific period. As the result the consumer are wiling and able to buy
the amount of a goods or service that will be produce by the producers.

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NAUFAL (DPM 2)

 From my opinion, demand and supply is like theory that explain about
interaction between the sellers of resources and the buyer for that resource .Then,
Demand is refers to the quantity of the product or service that customers are willing to
buy with various price.
After that, supply is quantity of product that producers ready and able to offer for
sale at different price. Then, the interaction between demand and supply in market it
can determines the equilibrium price and quantity. If demand exceeds supply, prices
are tend to rise and if supply exceeds demand, price can typically falls.

AZIM (DPM 2)

 In my opinion, demand and supply are basic concepts in economics that help explain
how the price and amount of goods and services are determined in the market. The
first is that demand refers to the amount of products or services that consumers are
willing and able to buy at various prices.
The law of demand states that, assuming all other factors are constant, when the
price of a good falls, the quantity demanded will rise, and vice versa. There are many
factors that affect demand, including individual income, and the price of related
goods. secondly is supply. This represents the amount of products or services that are
willing and able to offer for sale at various prices.
The law of supply states that, assuming all other factors are constant, when the
price of a good rises, the quantity supplied will rise. Various factors can affect supply,
such as, technological improvements, and the number of producers in the market.
Understanding these concepts is very important in economics because they help
explain how markets work, how prices are determined, and how changes in factors
 such as consumer preferences, production costs, or government policies can affect the
economy.

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AIDIL(DPM 2)

 The concepts of demand and supply are fundamental components that help explain
how markets function and determine prices and quantities of goods and services.
Despite on that, the forces of demand and supply are the pillars upon which market
economies are built. They shape the prices and quantities of goods and services,
guiding resource allocation and influencing economic decision-making.
Understanding the intricate relationship between demand and supply is crucial for
individuals, businesses, and policymakers alike. We will delve deeper into the concept
of demand and supply, exploring their components, determinants, and the way they
interact to determine market outcomes.
Basically, the amount of an item or service that customers are willing and able to
buy at different price points is known as demand. According to the law of demand,
quantity desired rises when a good or service's price drops and vice versa, all other
things being equal. There are several factors influence demand. For example, price
and quantity demanded are inversely related. When prices fall, consumers are more
likely to buy a greater quantity of a product. Quantity demanded and price have an
inverse relationship, as was previously mentioned. Lower pricing encourage buyers to
purchase a product in larger quantities.
Second, Supply is the amount of an item or service that producers are able and
willing to provide to the market at various price points. According to the law of
supply, a rise in the price of an item or service will, more often than not, result in an
equal increase in the amount offered. For example, producers are frequently
encouraged to raise the quantity they are prepared to give by a higher price.
For conclusion, In a free market, the equilibrium price and quantity are
established where the demand and supply curves intersect. This is the point at which
 buyers are willing to purchase the same quantity that producers are willing to supply.
The equilibrium price ensures that resources are efficiently allocated, as it represents
the most acceptable price for both producers and consumers.

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CONCLUSION

In conclusion, The concepts of demand and supply are fundamental in economics which
dictate how prices and quantities of goods and services are set in a market. Consumer
demand, which is driven by elements like pricing, consumer preferences, and income, is the
desire that people have for a good or service. According to the law of demand, when a good's
price rises, fewer people tend to buy it.

On the other hand, the amount demanded typically rises as the price fall. The amount of
a good or service that manufacturers are prepared and able to offer in the market is referred to
as supply on the opposite side of the equation. Government laws, technological
advancements, and production costs are some of the elements that affect it. The law of supply
states that when an item or service's price rises, so does the amount supplied. Determining the
equilibrium price and quantity in a market depends on the link between price and quantity in
both demand and supply.

The equilibrium point is where the quantity that consumers are willing to buy matches
the quantity that producers are willing to sell. This point is established when the demand and
supply curves intersect. Prices are stable and resources are distributed effectively in this
equilibrium. However, adjustments in price and quantity may result from shifts in the demand
and supply curves caused by changes in variables like consumer preferences, income,
technology, or production costs.
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REFERENCE

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7. Change in Demand vs. Change in Quantity Demanded | Marginal. (2023, October

24). Marginal Revolution University. https://mru.org/courses/principles-economics-

microeconomics/change-demand-vs-change-quantity-demanded#:~:text=A
 %20change%20in%20quantity%20demanded%20refers%20to%20a%20movement

%20along,related%20goods%20and%20so%20on.

8. Kenton, W. (2023, September 28). Supply Curve Definition: How it Works with

Example. Investopedia. https://www.investopedia.com/terms/s/supply-curve.asp

9. Market supply and market demand. (n.d.).

https://saylordotorg.github.io/text_economics-theory-through-applications/s12-01-

market-supply-and-market-deman.html

10. Change in Supply vs. Change in Quantity Supplied Interactive Practice. (2022,

November 29). Marginal Revolution University.

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supplied-interactive-practice
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