0 : Is the quantity of a product that consumers are
willing and able to purchase at various prices at
various amounts of time.
0 Demand for a good will rise or fall depending on
different factors such as the price of other goods or
the taste of the public depending on if your product is
elastic or inelastic.
0 A market exists wherever there are buyers and sellers
of a particular good. Buyers demand goods from the
market whereas sellers supply goods to the market.
Determinants of Demand
0 Advertising levels - the greater the advertising the
more people will view the product and the more
demand will rise.
0 Taste- if a clothing market, or what is the ‘cool’ thing
to have. Also is the clothing seasonal or an all year
0 Income levels- when consumers have greater
disposable income they will buy the products they
want but were perhaps too expensive before.
They shift left or right when there is a change in
income, price and availability of substitutes, tastes and
A shift left in the
from D2 to D3 as
there has become
a decrease in
Consumer surplus- the
difference between what
the consumer is willing to
pay and what they actually
pay for a product or service
Some key terms:
The Demand Curve:- the line on a price quantity diagram
which shows the level of any effective demand at any given
Individual Demand curve:- the demand curve for an individual
consumer or firm etc.
Market demand curve:- the sum of all individual demand
Consumer Surplus:- the difference between how much buyers
are prepared to pay for a good and what they actually pay. If
there was less of the product consumers would be willing to
pay more for the product expressing the law of demand.
0 Supply is defined as the quantity of goods that sellers
are willing to sell at multiple prices over a period of
0 Supply and Price: If the price of a good
increases, assuming no other factors change, they are
likely to expand production to take advantage of the
higher prices and the higher profits they can make.
0 Quantity supply will rise if the price of the good rises
if all other things are equal.
0 A Supply curve shows the quantity that will be supplied over a period of
time at any given price.
0 A rise in price will lead to a rise in quantity supplied, a fall in price will
lead to a fall in quantity supplied. - An upward sloping curve assumes.
0 Firms are motivated to produce by profit.
0 The cost of producing a unit increases as output increases.
Determinants of Supply
The price of other goods. Changes in the price of other goods can affect supply.
0 Cost of production: If the cost of production rises at any given point of
output. Firms will raise prices to try and cancel out this increase in
0 If they cant charge higher then profits will fall.
0 A rise in the cost of production leads to a fall in supply.
0 Technology: If new technology is introduced into the production process it
should lead to a fall in the cost of production due to greater product
efficiency. This means it will encourage more firms to supply more.
0 Expectations of future events: if firms expect future prices to be much
higher, they may restrict supply
The difference between the market price what the
firm receives and the price at which it is prepared to
supply at .
Shifts in supply – A shift to left will mean a
reduction in supply, a shift to the right will show an
increase in supply
The law of diminishing
0 The more of the variable factor of production is added
to a fixed gap, the smaller the output increase will be.
0 The equilibrium is set where the demand of a good or
service equals the supply.
0 Changes in supply and demand levels will result in a
new equilibrium price being set.
0 A change in demand will lead to a shift in the demand
curve, a movement along the supply curve and a new
equilibrium price and visa versa for supply a shift in
0 The equilibrium price is not necessarily the
price, which will lead to the greatest economic
Excess supply and demand
0 Surplus: A situation in which quantity supplied is
greater than quantity demanded. EXCESS SUPPLY
0 Shortage: A situation in which quantity demanded is
greater than quantity supplied. EXCESS DEMAND
Consumer and prodder surplus
Consumer surplus:- the difference between how much buyers are prepared to pay for a good
or service and how much they actually pay
0 Producer surplus is the difference between the market price at which firms receive and the
price at which they are prepared to supply .
0 An equilibrium price- the price at which there is no
tendency to change because planned sales are equal
to planned purchases.
0 Market clearing prices:- the price at which there is
neither excess demand nor excess supply but where
everything offered for sale is purchased.
0 Complements:- in joint demand, in one demanding good, a consumer will
also be likely to demand another good- e.g .tennis racket and tennis balls,
strawberries and cream.
0 Substitutes – a good, which can be replaced by another good. E.g. PEPSI AND
Many goods are demanded only because they are needed for the production of
other goods. This is known as derived demand.
Composite demand:- when a good Is demanded for two or more distinct uses.
In commercial transport, roads are in composite demand with commercial.
Joint supply:- is where two goods are together when one good is supplied for
two different purposes.