Supply and Demand - Chapter 29

Market

Any place where buyers and sellers can exchange goods and services. 

A market can be physical e.g supermarket e.g SuperValu or virtual e.g website e.g Amazon

Monopoly

A market where no competition exists e.g Iarnrod Eireann have a monopoly in rail transport in Ireland

Price discrimination

Selling the same product at different prices to different consumers e.g students and old age pensioners are assumed to have lower income are therefore charged lower prices for transport

Demand

The quantity of a product or service that consumers are prepared to buy at different prices

Supply

The quantity of a product or service that suppliers are prepared to sell at different prices

Law of demand

As the price of a good or services increases, the quantity demanded will decrease, and vice versa e.g if a product’s price falls by €100, demand will increase as more consumers will be able to afford it

Demand curve

A demand curve shows that the higher the price of the good or service, the lower the demand for the product. It has a downward slope

If it shifts to right, demand has increased

If it shifts to left, demand has decreased

How income affects demand curve

If the average income for households falls, demand will decrease and the demand curve will shift to the left.

If the average income for households rises, demand will increase and the demand curve will shift to the right

How price of substitute goods affects the demand curve

If the price of a substitute product falls, demand for a product will decrease and the demand curve will shift to the left

If the price of a substitute product increases, demand for a product will increase and the demand curve will shift to the right

How price of complementary goods affects the demand curve

If the price of a product decreases, demand for a complementary good (a product in joint demand) will increase and the demand curve will shift to the right

If the price of a product increases, demand for a complementary good will decrease and the demand curve will shift to the left

Exceptions to the Law of Demand

If a product is addictive, addicted consumers may continue to buy it despite an increase in prices (cigarettes)

An increase in the price of certain products can make them more attractive and demand continues as price is not the consumer’s main concern (e.g sports car)

Law of Supply

As the price of a good or service increases, the quantity supplied will increase, and vice versa

Supply Curve

A supply curve shows that the higher the price of a product or service, the greater the supply. It has an upward slope

If the supply curve shifts to the right, supply has increased

If the supply curve shifts to the left, supply has decreased

How Cost of Production affects the Supply Curve

If production costs increase, supply will decrease and the supply curve will shift to the left

If production costs decrease, supply will increase and the supply curve will shift to the left

How subsidies affect the supply curve

If a business receives a subsidy, supply will shift to the increase and the supply curve will shift to the rightH

How weather affects the supply curve

If poor weather affects crops, supply will decrease and the supply curve will shift to the left

If favorable weather boosts crops, supply will increase and the supply curve will shift to the right

Exceptions to the law of supply

If a supplier expects prices to increase in the future, they may withhold supplies until the price rises (e;.g oil)

Suppliers of a farm produce may not be able to react to a price increase as they are heavily dependent on the weather

When goods are in fashion, suppliers can charge a high price. Goods that go out of fashion are often supplied at a low price to clear stock

Market equilibrium

When quantity demanded equals quantity supplied

When will the market price change if one of the factors that determines demand and supply changes

Increased supply and unchanged demand leads to a decrease in price

Decreased supply and unchanged demand leads to an increase in price

Black Market

The market in which goods and services are sold and bought illegally is known as the black market