Economics Demand and Supply

the demand curve shows

the relationship between price and quantity demanded at various price levels.

it shows how much of a good consumers will want at different prices

Demand

different quantities of goods and services that people/consumers are willing and able to pay at many different prices

Quantity demanded

amount of a good or service that consumers are willing and able to buy at a given price.

law of demand

inverse relationship between price and quantity demanded.

As price falls. quantity demanded rises

As price rises, quantity demanded falls

Why does the law of demand occur

because of two main effects

substitution effect

Income effect

these effects makes consumers change their purchasing behaviour due to the price changes

Income Effect

if price goes down for a product, the purchasing power increases for consumers. This makes them purchase more. (purchasing power and price are inversely related

Substitution Effect

if the price goes up for a product, consumers will buy less of that product and more of another substitute product (and vice versa)

Demand scehdule

table of data that shows quantity demanded at different prices

Demand Curve

assume all outside factors, such as income, are held constant (this is called ceteris paribus)

downward slope showing the inverse relationship between y and x axis (y is price) (x is quantity demanded)

demand curve y axis

price (because we want our money going up)

X-axis

quantity demanded

Market Demand

lots of people = market demand

total quantity demanded by individuals in a market at a particular point .

Demand Shifts

when the amount of people who are willing and able to buy changes without a change in price

shift out

shift right (increase in demand)

shift in

shift left (decrease in demand)

Causes for shifts in demand

1, Tastes and Preferences

2. Changes in Price of Related Goods

   1. Substitute Goods

   2. Income Goods

3. Change in Income

   1. Normal Goods

   2. Inferior goods

4. Number of buyers

5. Expectations of Consumers

Tastes and Preferences

influenced by advertising and social conformity

Change in Prices of Related Goods

the demand curve for one good can be changed based on the change in price of another good.

Substitute Goods

used in place of another, if price of one increases, the demand for the other will increase (and vice versa)

inverse relationship

e.g. if Pepsi price increases, more people will want to buy Coke

Complementary goods

goods bought and used together

-if price of one increases, the demand for other will fall. (positive relation)

Change in Income

an increase or decrease in income can shift demand curve,

if income increases then demand for the product will increase for normal goods, and decrease for inferior goods, because they have more money and can buy more expensive things

Normal good

luxury cars, jewelerry, homes ( more expensive)

income increases, demand increases

Inferior Goods

cheaper goods, e.g. used clothes, used goods, top ramen, etc.

income increases, demand decreases

Number of buyers

the number of consumers that are available will change the demand,

e.g. beach resorts in winter, seasonal products

Expectation of Buyers

demand goes down when consumers expect a reduced price change in the near future,

e.g. black Friday.

change in price on demand graph

it will go along the graph, the graph either extends upwards if price is increasing, or downwards if price is decreasing.

D1, D2 thing

if price shifts, there is no D2, if price is constant and there is a shiftm then D2/D3

way to remember shift in demand

TRIBE (Tastes and preferences, related goods, income, buyers (number of), expectation of consumers

when I say demand

you say consumer

when I say supply

you say producer.

law of supply

positive relationship

when price increases, quantity supply increases (and vice versa)

Supply curve

graph that shows the positive relationship between price and quantity supplied; positive slope.

Quantity supplied

amount of good or services producers are willing and able to supply at different prices during a given time period.

Supply schedule

a table that shows the quantity supplied at different prices and is used to create a supply curve

why a direct relationship?

because the higher prices are, the more profit the producers make, so the more product they want to make to get higher profit.

supply shifts

when prices remain the same but the amount of producers are willing and able to produce changes.

Shift In

Shift left- decrease in supply (less resources means less input and productivity which means less supp,y)

Shift Out

Shift right - increase in supply,

Shifters of Supply

NITES

Number of sellers

Input costs

technology

expectation of producers

Subsidies and Taxes

Number of Sellers

Direct relationship,

number of sellers increase supply increases

number of sellers decrease, supply decreases

this is because the there are more sellers which means there are more products/products needed,

Input costs

prices/availability of resources

inputs are the resources necessary to produce a good or service

supply will change if the cost or availability of those rec=sources change, If less resources/input, then less ability to to produce.

If input cost is cheaper, than the the supply increases because they can produce at lower costs.

Technology

better production method

improvements in technology of production can change the cost of production and lead to increase in supply.

Expectations of future profits by producers

if a producer expect the price to change in the near future, they will change the supply they are willing to sell at market NOW.

e.g. if they know they’re price will increase later on, they will decrease the quantity supplied because they want to maximise resources without using up/wasting resources.

Subsidies and Taxes

subsidies- government payments that supports business or markets

Excise Taxes - type of tax on the manufacture or sale of a good (this is created by the government to make people not buy certain products)

if price changes

there is movement on the curve.