Demand and Supply Analysis explains how prices and quantities inmarkets are determined through the interaction between consumers(demand) and producers (supply).FundamentalConceptsDemandTheoryKey TakeawaysDemand: The amount of a product that consumers are willing and able topurchase at a specific price.Law of Demand: As price increases, quantity demand decreases (inverserelationship).Demand Curve: Graph showing the inverse relation between price anddemand.Demand Function: Mathematical form expressed as Qd = a - bPDeterminants of Demand:Price of goods ? , Income ? , Tastes and Preferences ? , Prices ofRelated Goods ?, Expectations ? and Population ????.Change in Quantity Demand: Movement along the curve due to the priceof goods.Change in Demand: Curve shifts due to non-price factors.Elasticities inEconomics40SupplyTheorySupply: The amount of a product that producers are willing and able to offer at aspecific price.Law of Supply: As price increases, quantity supply increases(direct relationship).Supply Curve: Graph showing the direct relation between price and supply.Supply Function: Mathematical form expressed as Qs = a + bP.Determinants of Supply:Price of goods ? , Input Prices (Cost of Production) ? , Technology ? ,Expectations ?, Number of Sellers ? and Government Policies ?.Change in Quantity Supply: Movement along the curve due to price of goods.Change in Supply: Curve shifts based on non-price factors.Price Elasticity of Demand (PED): Measures quantity demand changeswhen the price changes.Categories: Elastic, Inelastic, Unitary and Perfectly Inelastic.Cross Elasticity (Exy): Measures the relationship between two differentgoods when one price changes.Substitutes, Complements and Unrelated goods.Income Elasticity (Ey): Measures demand changes when consumer incomechanges.Normal, Inferior, Necessities and Luxuries goods.Price Elasticity of Supply (PES): Measures quantity supply changes whenthe price changes.Categories: Elastic, Inelastic, Unitary and Perfectly Inelastic.
S E L F - A S S E S S M E N TA. Theory Questions41QUESTIONS
S E L F - A S S E S S M E N TB. Calculation Questions42QUESTIONS
TOPIC4Market Equilibrium& GovernmentInterventionECONOMIC FORBE G I N N ERS
44KNOWLEDGE MAP
Equilibrium Market
45Demand equation: Qd = a − bPSupply equation: Qs = a+ bPTo find the equilibrium price (P),set Qd equal to Qs:a − bP = a + bPMARKETEQUILIBRIUMTable Method lists demand and supply atvarious prices; equilibrium is wheredemand equals supply.Draw the demand curve (slopes down).Draw the supply curve (slopes up).The point where they intersect is theequilibrium — it shows the price andquantity where supply equals demand.TableGraphicalMathematical Market equilibrium occurs when quantitydemand equals quantity supply, resultingin a stable price unless demand or supplychanges.The equilibrium price (P*) and quantity(Q*) can be found using methods suchas:Graphical method: Intersection ofdemand and supply curves.Mathematical method: Solve demandand supply equations simultaneously.Table method: Compare quantities atdifferent prices until they match.
Keeps essential goods affordable.Prevents sellers from charging veryhigh prices during crises.Helps low-income households.Prevents big companies fromunfair pricing.Surplus (Supply > Demand)Consumers pay higher prices.Government may need to buyexcess.Can cause unemployment if wagestoo high.Protects producers from losses.Ensures fair wages (minimum wage).Encourages production stability.Supports rural/agricultural sectors.GOVERNMENT INTERVENTONDefinitionMinimum price sellers can charge.E.g., minimum wage.Set above market price.Guarantees income for producers.Causes excess supply (surplus) or(Qs > Qd)PRICE CEILING PRICE FLOORDiagramAdvantagesDisadvantagesMaximum price sellers cancharge. E.g., housing rent.Set below market price.Protects low-income consumers.Causes excess demand(shortage) or (Qd > Qs)Shortages (Demand > Supply).Lower quality or black market.Producers earn less, reducesupply.Illegal high-price markets emerge.IN THE MARKET46
Surplus:Supply > Demand because price is aboveequilibrium → extra goods remain unsold.Shortage:Demand > Supply because price is belowequilibrium → not enough goods forconsumers.Increase in Demand:Curve shifts right → higher price & quantity.Decrease in Supply:Curve shifts left → higher price & lower quantity.THE EFFECTS OF CHANGES IN DEMAND OR SUPPLY ONEQUILIBRIUM CONDITIONSurplus → Price ↑ → QS > QDShortage → Price ↓ → QD > QSSurplus and ShortageK E Y I D E A SIncrease in Supply:Curve shifts right → lower price & higher quantity.Decrease in Demand:Curve shifts left → lower price & quantity.47
When a tax is added to a good or service,it affects prices and how much is purchasedor sold:Tax on Sellers (Supply curve shifts up):Price the buyer pays increases, andquantity sold decreases.(Price↑, Quantity↓).Tax on Buyers (Demand curve shifts down):Price received by sellers decreases, andquantity sold decreases.(Price↓ (for sellers), Quantity ↓).Tax incidence refers to who actually pays the tax — consumers orproducers.It depends on how flexible (elastic) supply and demand are:If demand is less elastic than supply → Consumers pay more of the tax.If supply is less elastic than demand → Producers pay more of the tax.Both share the tax burden, but the less elastic side (demand or supply)bears more of the tax burden.TAX INCIDENCEEffects of Tax on EquilibriumPrice and Quantity48
Definition:✅Market Equilibrium: Occurs when Quantity Demand (QD) = QuantitySupply (QS).Key Results in a stable equilibrium price (P*) and quantity (Q*).ConceptsSurplusvs.ShortageKey TakeawaysWays to Determine Equilibrium?Mathematical Method: Set QD = QS and solve for price (P).Table Method: Find equal QD and QS in a price table.Graphical Method: Equilibrium is where the demand and supply curvesintersect.?Surplus: Price above equilibrium → QS > QD.Shortage: Price below equilibrium → QD > QS.Effects ofShifts49?↑ Demand → Higher price and quantity.↓ Demand → Lower price and quantity.↑ Supply → Lower price, higher quantity.↓ Supply → Higher price, lower quantity.GovernmentIntervention?? Tax EffectsOn Sellers: Shifts supply curve left/up → ↑ price, ↓ quantity.On Buyers: Shifts demand curve left/down → ↓ price and quantity.? Tax Burden DistributionDepends on elasticity:If demand is less elastic → consumers pay more tax.If supply is less elastic → producers pay more tax.The less elastic side (demand or supply) bears more of the tax burden.?⚖ Price ControlsPrice Ceiling: Maximum price (set below equilibrium) → causes shortage.E.g., housing rent.Price Floor: Minimum price (set above equilibrium) → causes surplus.E.g., minimum wage.➕ AdvantagesCeilings: Protect consumers.Floors: Support producers.➖ DisadvantagesCeilings: Lead to shortages and lower quality goods.Floors: Lead to excess supply and inefficient production.Tax Incidence
S E L F - A S S E S S M E N T50QUESTIONS? A. Theory Questions
S E L F - A S S E S S M E N T51QUESTIONS AND KEY ANSWERS? B. Calculation Questions
TOPIC5Production &Cost TheoryECONOMIC FORBE G I N N ERS
KNOWLEDGEMAPCostsProduction
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54DefinitionProduction and cost theory explains how businessesdecide what to produce, how to use resources, andhow to control costs. It has two parts: production (howgoods are made) and cost (how much it costs tomake them).Both parts are closely related in the short run and thelong run production.
FACTORS OF PRODUCTIONThe human effort—both physical and mental—isinvolved in production.Economic Return: Wages or Salary (payment forthe workers' time and skills).Man-made assets are used to make goods(machinery, tools, buildings, and factories).Economic Return: Interest (payment for the use ofthe money/assets).The person who organizes resources, takes risks,and start the business.Economic Return: Profit (reward for taking risksand successfully organizing the business).Labor ?Capital ⚙Entrepreneur ?Natural resources used in production (water,minerals, soil, etc.).Economic Return: Rent (payment for the use of theland/resources).Land ?Knowledge and techniques to make productionfaster and more efficient.Economic Return: Usually higher profit for theentrepreneur.Technology?55
56Total Product (TP):Total output produced by a business.Formula:Key Concepts in ProductionThis law describes what happens to the Marginal Product (MP) when a variable input(like labor) is continuously added to a fixed input (like one factory).Increasing MarginalReturns ?Decreasing MarginalReturns⚖Negative MarginalReturns ?Adding a new unit of variableinput significantly increases theoutput.Labors get better organized anduse the factory/equipment moreefficiently (specialization).Adding a new unit of variableinput still increases output, butby a smaller and slower amounteach time.The factory size (fixed input)starts to become too small—labors begin to get in eachother's way.Adding a new unit of variableinput causes the total output todecrease(or the MP is negative).Too many workers are causingovercrowding and disruption,which makes the entireoperation highly inefficient.Law of Marginal Returns (The 3 Stages)Marginal Product (MP):Extra output from adding one more unit of input (e.g., per labor).Formula:Average Product (AP):Output per unit of input (e.g., per labor).Formula:In the short run, Labor (L) is usually the main variable input, while Capital (K)is the fixed input.Q represents the quantity of thevariable input (usually Labor, or L).
57Production cost is all the money a business spends to make its products orservices. These costs are divided into two types:Explicit costs: Actual cash payments the business makes to outsiders. e.g, pay wages(to workers), rent (for the building), or buying raw materials.Implicit costs: Non-cash costs; the hidden costs of running a business by using ownresources, e.g, the owner using personal savings for the business instead of earninginterest in a bank.Production CostsShort-Run Cost Concepts Table ?Short-Run Cost Curves
58? Short-Run Cost Curves? Long-Run Cost Concepts? Long-Run Cost Curves
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60⚖Economies of ScaleWhen a business grows, the cost per unit goes down becauseproduction becomes more efficient.Diseconomies of ScaleWhen a business gets too big, the cost per unit goes up because ofinefficiencies like poor coordination.Economies and Diseconomies of ScaleDefinition
Definition:It’s how producers decide the optimal quantity and optimal method ofproduction to maximize profit.KeyConceptsKeyProduction TermsKey Takeaways? Time & Production BasicsShort-Run: ? Time where some inputs are fixed. Only labor can beadjusted.Long-Run: ✅ Time where all inputs can change.Inputs (Factors of Production):? Land + ? Labor + ? Capital + ? Entrepreneur + ⚙ Technology?Total Product (TP): Total output produced.Average Product (AP): Output per labor.Marginal Product (MP): Extra output gained by hiring one more labor.Law ofMarginal Returns61?STAGE 1: Adding more labor → output to increase rapidly (⏫),STAGE 2: Adding more labor → output to still rise but more slowly (⏬),STAGE 3: Adding too much labor → total output decrease (⛔).UnderstandingCosts? In Short:Efficient production and cost management = more profit, smarter growth.?Short-Run Costs ?:TFC (Fixed Costs): Costs that don't change with output (e.g., rent).TVC (Variable Costs): Costs that do change with output (e.g., rawmaterials, wages).Long-Run Costs ?:LRAC (Long-Run Average Cost): The lowest possible cost per unit at anyoutput level when the firm can choose the most efficient size.Economies of Scale: Bigger size → lower cost per unit.Diseconomies of Scale: Too big → higher cost per unit due to inefficiency.
S E L F - A S S E S S M E N TA. Theory Questions62QUESTIONS
S E L F - A S S E S S M E N TB. Calculation Questions63QUESTIONS
TOPIC6MarketStructureECONOMIC FORBE G I N N ERS
StructureKNOWLEDGEMAPMarket
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66Market structure is determined by three key factors: number of sellers (one tomany), product similarity (identical or different) and price control (high to none).There are four main types of market structures:1.Perfect Competition2.Monopoly3.Monopolistic Competition4.OligopolyDefinition
PERFECTCOMPETITION670102Core Characteristics ✨Demand, Revenue & Cost ?TYPES OF MARKETSTRUCTURES
68PERFECTCOMPETITION0304Profit Conditions?⏳Short-Run vs. Long-Run ProfitTYPES OF MARKETSTRUCTURES
Core Characteristics ?MONOPOLY690102?Demand, Revenue & CostTYPES OF MARKETSTRUCTURES
MONOPOLY700304?Profit Conditions⏳Short-Run vs. Long-Run ProfitTYPES OF MARKETSTRUCTURESThe graph
MONOPOLISTICCOMPETITION710102Core CharacteristicsDemand, Revenue & CostTYPES OF MARKETSTRUCTURES
MONOPOLISTICCOMPETITION720304Profit Conditions?Short-Run vs Long-Run Profit ?TYPES OF MARKETSTRUCTURES
Core Characteristics ?OLIGOPOLY7301021. ? Prisoner's DilemmaFirms often don’t cooperate because each wants to maximize its own profit.Logic: Even if agreeing is better overall, each firm has an incentive to cheat.Outcome: If all cheat, everyone earns less than if they had cooperated.2. ? Price-Fixing Game (Collusion)Similar to Prisoner’s Dilemma but about pricing.Cooperation: Firms secretly agree to keep prices high (illegal).Cheating: One firm lowers price to gain more sales.Result: Cheating breaks the agreement → price wars → low profits.TYPES OF MARKETSTRUCTURES? Game Theory Models in Oligopoly
? Game TheoryModels in OligopolyOLIGOPOLY7403TYPES OF MARKETSTRUCTURES3. ? Game of ChickenA risky showdown between two big rivals.Aggression: Both take costly,aggressive actions (e.g., big pricecuts or huge investments).Loss: If neither backs down, bothsuffer heavy losses.Victory: The firm that holds out winsas the other concedes market share.♟ Strategic Decisionsin OligopolyIn oligopoly (few big firms), successdepends on rivals’ actions →interdependence.Goal: Predict rivals’ moves andchoose the best strategy.Why: To avoid costly battles andmaximize profit when rivals’ nextmove is uncertain.Tool: Game Theory helps firms planthese strategies.02
⚖ Antitrust Law inOligopolyOLIGOPOLY7504TYPES OF MARKETSTRUCTURESThese laws stop a few big rival firms from cheating customers and actinglike a monopoly. The goal is to make them compete fairly.❌ What's Forbidden?The law strictly bans talking and agreeing to:1.Fix Prices: Secretly agreeing on one high price.2.Share Customers: Agreeing on who gets which territory or customergroup.? The Gray AreaIf firms just copy the biggest firm’s price without talking, it’s legal. Thelaw needs proof of a secret deal.Goal:Force big firms to compete independently and give consumers fairprices.
CharacteristicsPerfectCompetitionMonopoly MonopolisticCompetitionOligopolySellers &BuyersProductPrice PowerEntry/ExitEntry/ExitAdvertising76Types ofMarketStructurePerfectCompetitionMonopolyMonopolisticCompetitionOligopoly3 ExamplesCOMPARISONSTYPES OF MARKETSTRUCTURES
77FORMULATYPES OF MARKETSTRUCTURES
78EXAMPLE: CALCULATIONTYPES OF MARKETSTRUCTURES
PerfectCompetitionMonopolyKey Takeaways?Many firms offer identical products.Price takers: No control over market price.Free entry and exit.Short Run: Firms can earn supernormal, normal, or subnormal profit.Long Run: Only normal profit due to entry/exit of firms.Profit Maximization: MC = MR.Demand curve is perfectly elastic (horizontal).?One firm dominates the market.High barriers to entry.Unique product, no close substitutes.Price maker: Has full control over price.Short Run & Long Run: Can earn supernormal profit consistently.Profit Maximization: MC = MR.Demand curve slopes downward; MR < AR.Oligopoly79MonopolisticCompetition?Few dominant firms in the market.High entry barriers, interdependence among firms.Product may be homogeneous or differentiated.Compete through non-price strategies (ads, quality).Game theory used to model decisions:Prisoner's DilemmaPrice-fixing gameGame of ChickenCan earn normal or supernormal profits in long run.?Many firms selling differentiated products.Low barriers to entry/exit.Some control over price due to differentiation.Short Run: Can earn supernormal profit.Long Run: Only normal profit due to new entries.Profit Maximization: MC = MR.Demand curve is downward sloping (less elastic than monopoly).
S E L F - A S S E S S M E N T80QUESTIONSA. Theory Questions
S E L F - A S S E S S M E N TB. Calculation Questions81QUESTIONS
References1. Parkin, M. (2022). Economics. Global Edition.(ISBN 978-1-29-243363-9)2. Mnkiw, N. G. (2023). Principles of Economics 9th Edition. Cengage.(ISBN 978-0-35-754159-3)3. Perloff, J. M. (2023). Microeconomics. Global Edition.(ISBN 978-1-29-244657-8)4. WallStreetMojo. (n.d.). Short Run. Retrieved July 22, 2025, fromhttps://www.wallstreetmojo.com/short-run/
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First Edition | 2026economicsfor beginnersPublished by pkb.mypolycc.edu.my Commerce DepartmentKM. 24, Kok Lanas16450 KeterehKelantanAddressPOLITEKNIK KOTA BHARUNORHIDAYAH BINTI MOHD SALEHNUR AZREEN AZRIANA BINTI AZHAMAuthors