Industry, Supply & Demand

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Session 5: Industry, Supply & Demand (P2- part 2)
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P2: Explain the size and scope of a range of different types
of organisations.
Dr Reza Aboutalebi
 Industry includes all organisations that do the
same business such as automobile industry (all
companies in the world that manufacture, sell or
fix automobiles)
 According to the United Nations’ Industry
Classification there are 416 industries that can be
categorized into 21 sectors. A sector is group of
industries that are related to each other.
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Characteristics of Industry Structure
•Structural attributes – Enduring characteristics giving an
industry its distinctive character
•Variations among industries involves examining
• Concentration – Extent to which industry sales are
dominated by only a few firms
• Economies of Scale – Savings firms within an industry
achieve due to increased volume
• Product Differentiation – Extent to which customers
perceive products of firms in industry as different
• Barriers to Entry – Obstacles a firm must overcome to
enter an industry
Industrial structures and competitive analysis
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Five Forces Driving Industry Competition
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 Demand is the quantity of final goods and
services that individuals and organizations are
willing and able to buy at each and every
price, all other things unchanged.
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 Aggregated/Total Demand is the quantity of
final goods and services that individuals and
organizations in an economy are willing and
able to buy at each and every price, all other
things unchanged.
The level of demand (aggregate demand)
depends on:
 The price level
 Households’ incomes
 Households’ and firms’ expectations (which
will affect their spending)
 Government spending
 The level of spending on exports and imports
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 Supply is the quantity of final goods and
services that firms are willing and able to
produce at each and every price, all other
things unchanged.
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 Aggregate/Total Supply is the quantity of
final goods and services that firms in an
economy are willing and able to produce at
each and every price, all other things
unchanged.
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The level of supply (aggregate supply) depends
on:
 The price level
 The level of technology in an economy
 The size of the labour force and its skills
 The amount and state of capital equipment
 The skill of management to combine
resources and use them effectively
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 An increase in demand is likely to increase
output and prices in any industry
 A decrease in demand is likely to decrease
output and prices in any industry
 An increase in supply is likely to increase
output and reduce prices in any industry
 A decrease in supply is likely to decrease
output and increase prices in any industry
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 Balance/Equilibrium in an economy occurs
where total/aggregate demand equals
total/aggregate supply
 Demand is downward sloping in relation to
price. A higher price level for a given level of
income reduces the quantity demanded.
 Supply is generally upward sloping in relation
to price.
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 An increase in demand will usually lead to an
increase in price and output. The relative
impact on price compared to output depends
on the price elasticity of supply.
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Price elasticity of supply shows the responsiveness of supply to a
change in price. It is important for a firm to know how quickly it can
respond to price.
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