demand + supply

what is the law of demand

as price increase, quantity decreases (inverse relationship)

what is law of supply

as price increase, quantity increase (direct relationship)

difference between movement along curve and shift of curve

• movement is caused by changes in price e.g. increase/decrease tax

• shift of curve is caused by non price factors e.g. changes in disposable income, changes in price of substitutes

what are the non price factors that affect demand

• changes in disposable income

• changes in price of substitute

• changes in the price of complementary goods

• changes in weather conditions

• Changes in fashions, tastes and preferences

• Changes in population size and age distribution

• Changes in the levels of consumer and business confidence

what are the non price factors that affect supply

• Changes in the cost of production (Land, Labour, Capital)

• Technology change and productivity growth

• Changes in climatic conditions affecting production & other disruptions

• Government intervention / Changes in government assistance to businesses or tax rates

how does increase in price of product affect demand

results in higher price, movement along demand curve, results in surplus of supply, suppliers must shift supply curve left to decrease supply and resolve shortage

how does increase in quantity demanded affect supply

results in higher prices, shift of curve to the right, results in shortage of supply,