Revision III: Demand and Supply

Demand

Quantity of a commodity people are willing or able to buy at various prices at a given period of time.

Law of Demand

If we raise the price of product, it will decrease the quantity demanded of the product.

Inverse

Qty. Demanded vs Demand

Change in Qty demanded is due to change in price, and movement along the curve.

Change in demand is the shift of the due to factors, change in qty. demanded at the same price.

Factors affecting Demand

1. Income (Y^, Q.D^)

2. Preferences

3. Price of related goods

4. No. of consumers

5. Future expectations

Increase in Demand

Shifts right

Substitute goods

If price of substitute goods increase, demand for good will increases because people cannot afford to buy substitute good.

Eg, coke and pepsi, ebook x and ebook y, mcdonalds and kfc, etc.

Complimentary goods

If price of complimentary goods increase, demand will decrease (shift left)

Eg; coke and burger, fries and ketchup, kindle and ebooks. etc.

Normal VS Inferior

As income increases, people buy more of normal goods.

As income increases, people buy less of inferior goods.

They are not necessarily cheap goods.

Supply

The amount of product the suppliers are willing to supply at certain prices in a given period of time.

Law of Supply

As the price increases, the quantity supplied increases.

Movement Along the Supply

If price of the good changes, how we expect the quantity of supply changes.

Change in Supply

The shift of the entire supply curve or the change in quantity supplied at the same price.

Due to external factors.

Factors effecting supply

1. Cost of production

2. Technology

3. No. of suppliers

4. Government taxes

5. Future expectations

Change in supply: Increase In supply

Shifts right

Change in Supply: Decrease in Supply

Shifts left

Market

Where buyers and sellers meet.

Online or physical

Market forces

Are what shift the curves of demand and supply, such as income, no. of consumers etc.

If a product becomes trendy, the force of rising demand pushes prices up. If a factory invents a cheaper way to manufacture a product, the force of increased supply pushes prices down.

Market Clearing price

Market clearing is the process or state in which a market adjusts until the quantity demanded exactly equals the quantity supplied.

Equilibrium

Where demand and supply intersect.

Qd = Qs