Demand and Supply: Key Concepts Explained
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1) Demand is the quantity of a good or service that consumers are willing and able to purchase at various price levels. The demand curve has a negative slope and shifts right when factors like income or preferences increase, and left when they decrease. 2) Supply is the quantity of a good or service that producers are willing to offer on the market at various price levels. The supply curve has a positive slope and shifts right when costs of production decrease and productivity increases, and shifts left when these factors decrease. 3) The interaction of supply and demand determines the equilibrium price and quantity in a market. When demand or supply shifts, a new equilibrium is established.
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Demand and Supply: Key Concepts Explained
- 2. • Quantity of commodity buyers are willing to buy • Behavior of buyers • Relationship between • Quantity demanded of a good • Price • Holding other factors constant Demand
- 3. •Amount of good or service •Per unit of time •The amount of goods which would be demanded at a particular price. Quantity Demanded
- 4. Demand Schedule •List of Qd at each price •table of the quantity demanded of a good at different price levels • table that lists the quantity of a good all consumers in a market will buy at every different price
- 5. Demand Schedule Price Quantity Demanded 1 5 2 4 3 3 4 2 5 1
- 6. Demand Curve •Graph of demand schedule •A graphic representation of the relationship between the price of a commodity and the quantity demanded •Has negative slope
- 7. Demand Curve 0 1 2 3 4 5 6 1 2 3 4 5 Quantity demanded Price
- 8. Law of Demand •As the price (P) increases the quantity demanded (Qd) decreases •As the price (P) decreases the quantity demanded (Qd) increases
- 9. Factors Affecting Demand • Income • If income decreases demand for such goods and services also declines • Purchasing power of individuals • Normal goods- increase in income = increase in demand • Inferior goods- increase in income = decrease in demand
- 10. • Buyer expectation • Expected change in • Future income • Future prices • No. of buyers/ consumers • More people = more demand for goods and services • demographics
- 11. • Preferences and taste • Trend • Change in technology • Something you want • Likes and dislikes • Prices of related goods • When the price of a certain product increases, people tend to buy a substitute product • In the case of complementary goods, if the price of one good increases the demand the demand for the other goods decreases
- 12. Change in Demand •Other factors affecting demand changes •Either shift to the RIGHT •Or shift to the LEFT
- 13. Shifting of the curve to the right 0 1 2 3 4 5 6 1 2 3 4 5 Quantity demanded Price
- 14. Shifting of the curve to the left 0 1 2 3 4 5 6 1 2 3 4 5 Quantity demanded Price
- 15. Change in Quantity Demanded •Movement along the curve •Theres a change in price and holding other factors constant
- 16. Shifting along the curve 0 1 2 3 4 5 6 1 2 3 4 5 Quantity demanded Price
- 17. Supply •Amount of goods and services sellers are willing to sell or supply in the market •The amount of a resource that is available
- 18. Law of Supply •As the price(P) increases quantity supplied (Qs)also increases •And as the price (P) decreases the quantity supplied (Qs)also decreases
- 19. Supply schedule Price Quantity supplied 1 1 2 2 3 3 4 4 5 5
- 20. Supply Curve 0 1 2 3 4 5 6 1 2 3 4 5 Quantity supplied Price
- 21. Factors Affecting Supply • Cost of inputs • These are the raw materials needed in producing goods • Prices of related goods • Changes in price of goods have effects in the supply of such goods • Seller expectation • Expect to rise very soon = keep the goods then releases when prices are already high
- 22. • No. of sellers • More sellers or more producers = increase in supply • Less sellers or less producers = decrease in supply • Productivity • Output • Increase in output lowers cost • Cause: • Technology • Human capital
- 23. Change in Supply •Other factors affecting supply change •If it increases shift to the RIGHT •If it decreases shift to the LEFT
- 24. Change in Supply 0 1 2 3 4 5 6 1 2 3 4 5 Quantity supplied Price
- 25. 0 1 2 3 4 5 6 1 2 3 4 5 Quantity supplied Price
- 26. Change in Quantity Supplied •When price change holding other factors constant •Movement along the curve
- 27. 0 1 2 3 4 5 6 1 2 3 4 5 Quantity supplied Price