3.1.31 How prices are determined

What is demand?

quantity of g/s consumers willing and able to buy at a given price in a given time period

Law of Demand

Good's price lower, consumer buys more

Factors that affect demand

Income levels, tastes and preferences, competition and fashion

Shift in demand

Increase in demand --> shift to the right.

Decrease in demand --> shift to the left

What is supply?

quantity producers willing and able to sell at given price in given time period

Law of supply

When market price of good increases, producers increase quantity supplied

Factors that affect supply

Production costs, technology, gov taxes/subsidies, climate

What is Equilibrium price

where demand and supply are equal

Excess demand

price lower than equilibrium, too many buyers

Excess supply

price higher than equilibrium, too many sellers

Substitute goods

Price increase in one, increases demand for another. eg Apple/samsung

What is intermarket relationships?

when changes in particular market can change other markets

Complementary goods

Price increase in one, decreases demand for another. eg pancake/syrup