Demand & Supply: Key Concept, Shifts, and Market Equilibrium

What is the definition of supply?

Supply is the amount of a good or service that firms are willing and able to sell at different prices during a given period.

What is NOT considered supply?

The total stock that exists and the amount actually sold.

What are the main determinants of supply?

1. Price of the good

2. Prices of related goods produced

3. Cost of production

4. Technology

5. Expected future prices

6. Other factors (taxes, weather, government policies etc.)

What does the Law of Supply state?

There is a positive relationship between price and quantity supplied: as price increases, quantity supplied increases, and vice versa.

What is a supply schedule?

A table showing how much producers will supply at different prices.

What is a supply curve?

A graph of the supply schedule that is upward sloping, showing the positive relationship between price and quantity supplied.

How is the market supply curve derived?

The market supply curve is obtained by adding together the quantities supplied by all firms at each price.

What does ‘quantity supplied’ refer to?

The amount supplied at a specific price, represented by a movement along the same supply curve.

What does ‘supply’ refer to?

The whole supply relationship, represented by a shift of the entire supply curve.

What happens to the supply curve when supply increases?

The supply curve shifts rightward.

What happens to the supply curve when supply decreases?

The supply curve shifts leftward.

How do substitute goods affect supply?

If the price of a substitute good increases, producers may switch to that good, decreasing the supply of the original good.

How do complementary goods affect supply?

If the price of a complementary good increases, the supply of the related good also increases,

What effect does an increase in production costs have on supply?

An increase in production costs decreases supply, shifting the supply curve leftward.

How does technology impact supply?

Better technology allows forms to produce more, increasing supply and shifting the supply curve rightward.

What happens to supply if producers expect future prices to rise?

Current supply decreases as producers hold back goods, shifting the supply curve leftward.

What is market equilibrium?

The point where demand equals supply, resulting in quantity demanded equaling quantity supplied.

What occurs during disequilibrium?

When quantity demanded does not equal quantity supplied, prompting market adjustments to restore equilibrium.

What is a surplus?

Occurs when price is above equilibrium, leading to quantity supplied exceeding quantity demanded.

What is a shortage?

Occurs when price is below equilibrium, leading to quantity demanded exceeding quantity supplied.

What happens to price and quantity when demand increases?

Price increases and quantity increases.

What happens to price and quantity when demand increases?

Price increases and quantity decreases.

What is the effect of increased supply on price and quantity?

Price decreases and quantity increases.

What is the relationship between demand and supply changes?

Changes in demand and supply can lead to uncertain price changes while affecting quantity in predictable ways.