1. The document discusses demand, supply, and equilibrium in markets. It defines demand as the quantity of a product consumers will purchase at various prices, and supply as the quantity producers will provide. 2. The law of demand and supply state that demand is inversely related to price, while supply is directly related. Equilibrium occurs where quantity demanded equals quantity supplied. 3. Changes in demand or supply curves can shift them, disrupting equilibrium and causing shortages or surpluses until a new equilibrium is reached. Factors like income, tastes, and input costs influence demand and supply conditions.

1. Demand, Supply and Equilibrium INSPIRING CREATIVE AND INNOVATIVE MINDS

2. Demand A market consists of: Buyers (demand) Sellers (supply) Exchange Effective demand = the quantity of a commodity which consumers will purchase at a given price per time period.

3. A table showing the quantity demanded of a product at various prices E.g. Demand Schedule for Big Macs Price Qty demanded $1 500 $2 400 $3 300 $4 200 $5 100 The Demand Schedule

4. Graphical representation of demand schedule The Demand Curve Price Quantity $ 5 2 1 3 4 100 200 300 400 500 The Demand For Big Mac

5. The Law of Demand As price increases the quantity demanded decreases, conversely , as price decreases the quantity demanded increases.

6. Reflects an inverse relationship ie As Price , quantity demanded As Price , quantity demanded The law of demand is caused by: The Income Effect The Substitution Effect The Law of Demand

7. As prices increase, consumers will purchase fewer goods and services. Their purchasing power (or real income) decreases Quantity demanded decreases. As prices decrease, the purchasing power of consumers increases Quantity demanded increases. The Income Effect

8. The Substitution Effect As prices increase, consumers generally purchase more of a substitute product whose price is lower. A substitute product is a product that performs a similar function and satisfies the same consumer need/want e.g. Tea/ Coffee Butter/Margarine If the price of butter increases , the quantity demanded will fall as consumers will substitute butter with margarine.

9. Supply Definition: the quantity of a product which producers offer to the market at a certain price per unit of time.

10. The Law of Supply As price increases the quantity supplied increases, conversely as price decreases the quantity supplied decreases.

11. The law of supply is a direct relationship between price and quantity supplied. As P Quantity supplied As P Quantity supplied The Law of Supply

12. The Logic of the law of supply Producers will seek to maximise their profits. ie Supplying more at higher prices and less at lower prices.

13. A table showing the quantity supplied at various prices. Example: Supply Schedule for Big Macs Price Qty Supplied $1 200 $2 300 $3 400 $4 500 $5 600 The Supply Schedule

14. Price Quantity $ Supply Curve 1 2 3 4 5 200 300 400 500 600 The Supply Curve

15. Supply and Demand can now be brought together, to form the price mechanism . Price Quantity S D Equilibrium point (E) EP Market Equilibrium

16. Market Equilibrium (E) is where: Qty demanded = Qty supplied (intersection of demand and supply curves) the market is cleared (no shortages or surpluses) Price (EP) is stable

17. Market Disequilibrium = where Qty Demanded is NOT EQUAL to Qty Supplied. Types: 1. Market Shortage: where Qty demanded > Qty supplied 2. Market Surplus (oversupply): where Qty supplied > Qty demanded

18. Price Qty S D P QS QD Shortage Market Shortage Caused by price being set BELOW the equilibrium.

19. Caused by price being set ABOVE the equilibrium. P Q S D QD QS Surplus Market Surplus

20. Changes in Demand Certain factors (other than price changes) affect the absolute level of demand. These factors are called Conditions of Demand. Changes to the Conditions of Demand cause changes in demand and this results in shifts of the Demand curve.

21. The entire demand curve shifts to the Right . Qty Price D D1 S E E1 EP EP1 EQ EQ1 An Increase in Demand

22. EQ1 EQ A Decrease in Demand The entire demand curve shifts to the Left Caused by a factor other than price Price Qty S D D1 E E1 EP EP1

23. Conditions of Demand Change in tastes Improvements in Technology Real Income Change in Population Change in the price of Substitutes A change in the price of other goods Expectations of the future Advertising

24. Changes in Supply Certain factors (other than price changes) affect the absolute level of supply. These factors are called CONDITIONS OF SUPPLY and they result in shifts of the supply curve (not movements along it).

25. Price Qty S D S1 E E1 EP EP1 EQ EQ1 An Increase in Supply Supply curve shifts to the right.

26. Price Qty S D S1 E E1 EP1 EP EQ1 EQ A Decrease in Supply Supply curve shifts to the left

27. Conditions of Supply Improvements in technology A change in production costs A change in the price of alternative products Weather and seasons