PREPARED BY: ROSMAH BT ABD GHANI @ ISMAIL

1. 2. 3. 4.

Free Goods Economic Goods Public Goods Services

1.

Free Goods
Goods that have no production cost E.g: sunlight, rainwater

2.

Economic Goods
physical goods made by man involve a production cost E.g : textbook, shoes

3.

Public Goods
goods that have a common use & are benefit to everyone E.g : public clinics, school, roads

4.

Services
Intangible things ( with value), cant be seen & touched E.g : medical care, education
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Inferior

Related goods
Substitute complementary

Necessity

Types of goods

Luxury

Normal

 Concept of goods

AlTayyibat

Good, clean & pure things The ethical and spiritual values of consumer goods.

Al-Rizq
Tarafiah

Godly sustenance, Divine bestowal, or Heavenly gifts Allah is the only Sustainer and Provider for all creatures

Goods which cause wastage/extravagance

 Classification of goods based on hierarchy of

needs

Kamaliyah
Goods that contribute towards the perfection of life

Hajiyah
- Goods that enhance the quality of life

Dharuriyah
-goods which fulfill our basic needs
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Definiton

DD vs QD

Law of DD

Determinants

How to draw

 The ability & willingness to buy G&S for a given price

at a certain time period. ceteris paribus. Desire to buy goods or services with ability and willingness to pay

Definition of quantity demanded (Qd)

The amount (number of units) of a goods or services that a household would buy in a given time period if it could buy all it wanted at the current market price.

 Negative relationship between price (P) and

quantity demanded (Qd) As price rises, the quantity demanded decreases (P,Qd) and As price falls, the quantity demanded increases (P ,Qd ) with all else equal or ceteris paribus

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 A demand schedule is a

table showing how much of a given product a household would be willing to buy at different prices. Demand curves are usually derived from demand schedules.

Demand for corn

Price (RM) 5 4 3 2 1 Qd (per kg) 10 20 35 55 80

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Demand for corn

Price (RM )

The demand curve is a graph

illustrating how much of a given product a household would be willing to buy at different prices.
The law of demand states that

there is negative relationship between price and the Qd

This means that the demand

curves slope downward

D
Qd (kg)
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Price
(RM)

Qd

(kg)
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Price of Corn

P
CORN

$5

P $5 4 3 2 1

QD 10 20 35 55 80

Plot the Points

10 20 30 40 50 60 70 80 Quantity of Corn

Qd
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Price of Corn

P
CORN

$5

P $5 4 3 2 1

QD 10 20 35 55 80

Plot the Points

5560 70 80 10 20 30 40 50

Qd
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Quantity of Corn

Price of Corn

P
CORN

$5

P $5 4 3 2 1

QD 10 20 35 55 80

Plot the Points

10 20 30 40 50 60 70 80 35 Quantity of Corn

Qd
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Price of Corn

P
CORN

$5

P $5 4 3 2 1

QD 10 20 35 55 80

Plot the Points

10 20 30 40 50 60 70 80 Quantity of Corn

Qd
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Price of Corn

P
CORN

$5

P $5 4 3 2 1

QD 10 20 35 55 80

Plot the Points

10 20 30 40 50 60 70 80 Quantity of Corn

Qd
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Price of Corn

P
CORN

$5

P $5 4 3 2 1

QD 10 20 35 55 80

Connect the Points

D
10 20 30 40 50 60 70 80 Quantity of Corn

Qd
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Individual demand is the demand

of one buyer in a market at various prices Market demand is the sum of demands of all buyers in a market at various prices
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Price (RM/KG)

Quantity demand Consumer A Consumer B 8 6 4 2 1 Consumer c 6 5 4 2 1

Market demand

1 2 3 4 5

10 8 6 4 2

24 19 14 8 4

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1.Price factor 2.Non-price factors

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1. Price Factor: Price Itself

Law of demand: As price rises, the quantity demanded decreases (P,Qd) and As price falls, the quantity demanded increases (P ,Qd ) with all else equal or ceteris paribus Negative relationship between price and quantity demanded
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1. Non-price Factors
i. The price of related goods ii. Consumers income iii. Taste and preference iv. The number of buyers in the market/ population v. Seasonal factor - expected future price
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i.

Price of related goods

Substitute
-Goods that can serve as replacements for one another -When the price of one increases, demand for the others goes up -Example: palm oil and soybean oil are substitutes so the demand for soybean oil increases when the price of palm oil rises Ppalm oil, Qd palm oil, Dsoybean oil

P1 P0 P0

D0
Q1 Q0 Qd

D0 Q0
Q1

D1 Qd

Complements -Goods that go together -A decrease in the price of one results in an increase in a demand for the other, vice versa.

-Example: Pen and ink are complements, so the demand for ink decreases when the price of pen rises
Ppen, Qd pen, D ink

P1 P0

E1 E0 P0

D0 Q1 Q0 Qd Q1 Q0

D1

D0 Qd
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ii.

Income is the sum of all households wages, salaries, and other forms of earnings in a given period of time As income increases the demand for most goods will increase With an increase in income, consumers have the purchasing power to demand for more goods -Two types of goods a. Normal good: when income increase, demand for this good also increase. Example: cloth b. Inferior/ giffen: when income increase, demand for this good decrease. Example: used car, bundle shirt Taste and preference What people like and dislike without regard the budgetary consideration of price and income As preference change, demand will change Example: changes in people lifestyle

iii.

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iv. v.

The number of buyers in the market/ population The greater the number of buyers in a market, the demand will increase Example: the demand for parking spaces Seasonal factor During festive seasons, demand for certain product will increase Example: During Chinese New Year, demand for mandarin oranges will increase

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Changes in Qd
Def: Movement along the same

Changes in demand
Def: Shift of demand curve Factor influence is non-price

demand curve
Factor influence is price

determinants -price will remains constant

change in income, taste and

determinant -Example:P, Qd
change in price of a good or

service leads to change in Qd

preference, and price of related goods leads to change in demand

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Changes in Qd
Price C P1 Po P2 Qo Two types of movement: Q1 contraction A expansion

Changes in demand
Price

P D2 Do Q1 D1 Qd

B
D

Q2

Qd

Two types of shifting

Q2

Qo

1.Expansion: occurs when P decrease leads to an increase in Qd (downward movement) from Qo to Q2 (A to B) 2.Contraction: occurs when P increase leads to a decrease in Qd (upward movement) from Qo to Q2 (A to C)

1.Rightward: increase in demand from Qo to Q1 (Do to D1). Occurs when -price of substitute good -price of complement good -consumers income -expected future price (etc) 2.Leftward:decrease in demand from Qo to Q2

(Do to D2). Occurs when (vice versa from rightward)

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 Amount of a particular product or service that

firm would be willing and able to offer/sell at a particular price

Definition of quantity supplied (Qs)

represents the number of units of a product that a firm would be willing and able to offer for sale at a particular price during a given time period.
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 As price rises, the quantity supplied will also

increase (P,Qs ) and As price falls, the quantity supplied will fall (P ,Qs ) with all else equal or ceteris paribus The law of supply states that there is a positive relationship between price and quantity of a good supplied.
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Yess supply schedule for soybeans

Price (USD per bushel) 1.75 2.25 3.00 4.00 Qs (thousands of bushels per year)

A supply schedule is a

10 20 30 45

table showing how much of a product firms will supply at different prices. Supply curves are usually derived from supply schedules.

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Yess supply
Price (USD per bushel) S 4.00 3.00 2.25 1.75

A supply curve is a graph

illustrating how much of a product a firm will supply per period of time at different prices supply curves have a positive slope

10 20 30 45 Thousands of bushels of soybean produced per year

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Individual supply is the supply of one

seller in a market at various price Market supply is the sum of all the quantities of a good or service supplied per period by all the firms selling in the market for that good or service.

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1. Price factor 2. Non-price factors

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 As price rises, the quantity supplied will also

increase (P,Qs ) and As price falls, the quantity supplied will fall (P ,Qs ) with all else equal or ceteris paribus positive relationship between price and quantity of a good supplied
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i.
ii. iii.

iv.
v. vi. vii.

Cost of production/ prices of raw material Technological advancement Government policies Price of other goods Number of suppliers Climatic condition Expected future price

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i.

ii.

Cost of production/ prices of raw material The cost of producing the good, which in turn depends on the piece of required inputs (labour, capital and land) Example: when the wages of workers increase, the cost of production will increase, thus supply will decrease Technological advancement Generally will increase the supply of product Technology advancement reduces the use of input and cost of production, so more output can be produced using the same amount of input and cost

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iii. iv.

Government policies Taxes imposed by the government on certain goods will reduce supply on the market Disincentives to producer because it increase the cost of production Example: Tax on cigarettes Price of other goods Substitute good: an increase in the price of substitute good, decreases the supply of the good Example: when the prices of soybean oil increase, the supply of soybean oil produce will be increase and the supply of palm oil will be decrease Complements good: an increase in the price of the good will increase the supply of other good Example: shuttlecock and racket
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Number of suppliers The larger the number of suppliers supplying a good, the larger is the supply of the good Example: increase in stationary shop in Perak will increase the supply of stationary good in Perak vi. Climatic condition Especially in agricultural and fishing industry vii. Expected future price If the producers expect in the near future will increase, supply for today will reduced and vice versa
v.
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Changes in Qs
Def: Movement along the same

Changes in supply
Def: Shift of supply curve
Factor influence is non-price

supply curve
Factor influence is price

determinants -price will remains constant

change in cost, input prices,

determinant

-Example:P, Qs
change in price of a good or

service leads to change in Qs

technology or prices of other goods leads to change in Qs

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Changes in Qs
Price (P) P2 P1 P0 C Qo S B A expansion contraction Q1 Q2 Qs

Changes in supply
Price (P) S1 S2 S3 P

Q1

Q2

Q3

Qs

Two types of movement: 1.Expansion: P increase leads to an increase in Qs (upward movement), from A to B 2.Contraction: P decrease leads to a decrease in Qs (downward movement), from A to C

Two types of shifting 1.Rightward: increase in supply from Q2 to Q3(S2 to S3). Occurs when -price of substitutes good -price of complements good -expected future price -when gov gives subsidies 2.Leftward:decrease in demand from Q2 to Q1 (S2 to S1). 0ccurs when (vice versa from rightward)

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END

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