Supply and Demand Curve

Supply and Demand Curve: Demand

Demand

• Quantity demanded: the amount of a good that buyers are willing and are able to purchase
• Price of the good will play an important role in quantity demanded
• Law of demand: when the price of a good rises, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises. (Assuming that the other factors are equal)
• The downward-sloping line relating price and quantity demanded is called the demand curve
• Market demand: this is the sum of all the individual demands for a particular good or service
• The market demand curve indicates how the total quantity demanded of a good will vary as the price of the good changes, while all the other factors that affect on how much consumers want to buy are held constant.

Shifts in the demand curve

• Any change that increases the quantity that buyers wish to purchase at any given price shifts the demand curve to the right.

• Any change that decreases the quantity that buyers wish to purchase at any given price shifts the demand curve to the left.

Income: A lower income means that you have less to spend in total, so you would have to spend less on some goods

• Normal goods: a good for which, an increase in income leads to an increase in demand. (Other factors are held constant)
• If the demand for a good falls when income falls, the good is called a normal good
• Inferior good: a good for which, an increase in income leads to a decrease in demand. (Other factors are held constant)
• If the demand for a good rises when income falls, the good is called an inferior good.

Price of related goods:

• Substitutes are often pairs of goods that are used in place of each other, such as apples and oranges.
• A fall in the price of one good reduces the demand for another good.
• Substitutes: two goods for which an increase in the price of one leads to an increase in the demand for the other
• Complement: two goods for which an increase in the price of one leads to a decrease in the demand for the other.
• When a fall in the price of one good raises the demand for another good, the two goods are called complement  (ex: gasoline and automobiles)

Tastes: Naturally, if you like something, you would buy more of it.

Expectations:  your expectations about the future may affect your demand for a good or service in a present situation.

Supply and Demand Curve: Supply

Supply

• Quantity supplied: the amount of a good that sellers are willing and are able to sell.
• Price plays an important role in quantity supplied.
• Law of supply: the quantity supplied of a good rises when the price of the good rises
• Other things equal, when the price of a good rises, the quantity supplied of the good also rises, and when the price falls, the quantity supplied falls as well
• Supply curve: a graph of the relationship between the price of a good and the quantity supplied
• The supply curve slopes upward because, other things equal, a higher price means a greater quantity supplied.

Shifts in the Supply curve:

• Increase in supply: supply curve shifts to the right
• Decrease in supply: supply curve shifts to the left

• Input Prices:
• If the price of one or more inputs (building, supply, material, etc) rise, producing a good is less profitable, and firms supply less of the good.

• Technology: advance in technology can raise the supply of a good
• Expectations
• Number of Sellers

Equilibrium

• This is when the market price has reached the level at which quantity supplied equals quantity demanded
• This is also the point at which the supply and demand curves intersect
• Equilibrium price (the price that balances quantity supplied and quantity demanded) is the price at the intersection
• At the equilibrium price, the quantity of the good that buyers are willing and are able to buy exactly balances the quantity that sellers are willing and are able to sell.
• Equilibrium price is also known as market-clearing price
• Equilibrium quantity (the quantity supplied and the quantity demanded at the equilibrium price) is the quantity at the intersection

• Surplus (situation of excess supply) is when the quantity supplied is greater than quantity demanded
• Sellers are not able to sell all they want at the going price
• Shortage (situation of excess demand) is when quantity demanded is greater than quantity supplied
• Demanders are not able to buy all they want at the going price

• Law of supply and demand: the price of any good will adjust to bring the quantity demanded and the quantity supplied for that good into balance

End of supply and demand curve notes.

Supply and Demand Curve - Back to Economics
Supply and Demand Curve - Back to SG Learn Online