ECON Supply and Demand

Definition of demand according to Gabay et al

The number or amount of goods and services desired by the consumers at various prices in a particular period of time

Definition of quantity demanded according to Gabay et al

Is the amount of goods and services consumers are willing and able to buy at a given price, place, and period of time

What does the law of demand state

As price increases, quantity demanded decreases and as price decreases, quantity demanded increases, if other factors remain constant or ceteris paribus

When is the law of demand only true

Ceteris paribus meaning if all other factors remain constant

Determinants or Non-price determinants of demand

Consumers’ Income (Y), Consumers’ Expectation of Future Prices (e), Prices of Related Products (Prel), Consumers’ Tastes and Preferences (T), Population (Pop)

Refers to a good for which demand at every price increases when income rises or vice versa

Normal goods

Refers to a good in which demand falls when income rises and vice versa

Inferior Good

Are goods that can be used in place of other goods

Substitute products

Are goods that go together or cannot be used without the other

Complementary products

What is the demand function

Qd = f (P, Y, e, Prel, T, Pop)

or if ceteris paribus:

Qd = f (P)

Shows the tabular representation of the relationship between the quantity of a good demanded and the price of that good

Demand schedule

Graphically shows the relationship between the quantity of a good demanded and its corresponding price. It is typically downwards sloping because of its negative relation

Demand curve

What is a change in quantity demanded versus a change in demand caused by

A change in quantity demanded is due only to a change in price and is represented by a movement along the demand curve. Meanwhile a change in demand is due to a change in the non-price determinants and is represented by shifting from one demand curve to another.

Definition of Supply according to Gabay et al

Supply is defined as the maximum units or quantity of goods or services producers can offer

Definition of Quantity Supplied according to Gabay et al.

refers to the amount or quantity of goods and services producers are willing and able to supply at a given price, place, and time

What does the law of supply state

The law of supply states that as price increases, quantity supplied also increases and as price decreases, quantity supplied also decreases ceteris paribus

Non-price determinants of supply

Change in Technology, Cost of Inputs used, Expectation of Future Price, Price of Related Products, Government Regulation and Taxes, Government Subsidies, Number of Firms in the Market

It is a mathematical expression of the law of supply or the relationship between price and quantity supplied

Supply function

What is the supply function

Qs = f (Px, T, C, Exp, Grt, Gs, M)

or

Qs f (Px)

Shows the tabular representation of the relationship between the quantity of a good supplied and its price

Supply schedule

Shows graphically the relationship between quantity of a good supplied and price

Supply curve

What is a change in supply vs a change in quantity supplied

A change in quantity supplied is the movement along the supply curve due only to a change in price. A change in supply is the shifting from one supply curve to another brought about by a change in the non-price determinants.

It is a state which implies a balance between the law of supply and demand, in which quantity demanded and quantity supplied are equal

Market equilibrium

A condition where quantity supplied is greater than quantity demanded

Surplus

A condition where quantity demanded is greater than quantity supplied

Shortage

Defined as the maximum price a good or service is bought or sold

Price ceiling

Government control can also impose minimum price which is referred to as

Price floor