Unit 1 Law of demand and supply and shifts 2023

missing: 2nd slides notes, practice task, non price factors

what is demand? what is the law of demand?

Demand in a market occurs %%when buyers use their income to purchase a particular quantity of a good or service%%.

The law of demand states that as price increases, demand generally falls, There is an inverse relationship between price and quantity demanded.

expansion in demand

movement down the demand curve

contraction in demand

movement up the demand curve

An decrease in the quantity demanded will result in a shift of the demand curve to the left or right. What causes this?

Non price factors including (handout 2)

• disposable income

• price of subsitute goods

• price of complement goods

• preference and tastes of consumers

• interest rates

• changes in population

• consumer sentiment

• govenrment intervention

how is movement along demand curve and shift in demand different?

1. When there is movement only along the demand curve, this means price is the only factor that is changing

2. When the entire demand curve shifts, it signals that other determinants of demand, excluding price, have changed

how is consumer sentiment and consumer confidence different?

Consumer confidence is based

• Business conditions for the next six months

• Employment conditions for the next six months

• Total family income for the next six months

• Short term

Consumer Sentiment is based on

• Personal Finances for 1-5 years

• Business Conditions 1-5 Years

• Medium to long term

what does the law of supply state?

The law of supply states that: as the price of a product increases, the total quantity supplied increases and as the price decreases the total quantity supplied decreases, as there is a reduced opportunity to make a profit.

expansion in supply

movement up the supply curve

contraction in supply

movement down the supply curve

what can cause the supply curve to shift left or right?

non price factors (handout 5)

• costs of production

• technological change

• productiviy growth

• climactic conditions

• disruptions: war and disruptions

• government intervention

what is the difference between movement along and shift of the supply curve?

1. When there is movement only along the supply curve, this means price is the only factor that is changing

2. When the entire supply curve shifts, it signals that other determinants of supply, excluding price, have changed

what is equilibrium?

At equilibrium, the quantity demanded exactly equals the quantity supplied. It’s given by the intersection of the demand and supply curves

what is a surplus?

If the ruling price is above the equilibrium price a surplus emerges which has a tendency to push the price of the good or service down towards equilibrium. Excess supply or a surplus=demand is less than supply

why does a surplus push the price of something down to equilibrium?

This results in goods being left over which are not sold. To correct this issue, __**producers will lower the price**__ and offer discounts in order to increase demand from consumers and sell the leftover stock. 

what is a shortage?

Shortages occur when demand is greater than supply. This means that the price is lower than the equilibrium price, meaning that the quantity demanded is a lot bigger than the quantity supplied, as producers are less willing to make more goods if they receive a lower price.

from practise task: explain what is meant by an increase in the demand for bananas (the curve shifted)

In this context, consumers are now willing to purchase more bananas at previous price levels

from practise task: explain what is meant by a decrease in the supply of bananas (the curve shifted)

Producers are less willing to produce bananas at previous price levels