Supply & Demand Economics

Learning Targets

  • Compare & contrast Free Enterprise and Socialist economic systems and their decision-making processes.

  • Explain the relationship between price and quantity demanded, and factors affecting demand.

  • Explain the relationship between price and quantity supplied, and factors affecting supply.

  • Describe how supply and demand create equilibrium price, and how changes affect equilibrium.

Key Concepts in Economics

  • Economics: Study of how people use limited resources to satisfy unlimited wants.

  • Scarcity: Limited resources necessitate choices and trade-offs.

  • Opportunity Cost: Most desirable alternative forgone when a choice is made.

Types of Economic Systems

  1. Traditional: Based on tradition; decisions made according to past practices (e.g., Amish).

  2. Socialism/Command: Government makes all economic decisions.

  3. Free Enterprise/Market: Individuals are free to make economic decisions.

  4. Mixed Economy: Combination of free market and government control (e.g., USA, India).

Demand

  • Demand: Amount consumers are willing to buy at a given price.

  • Law of Demand: If price falls ($P↓), quantity demanded rises ($Qd↑) and vice versa.

  • Demand Schedule: A table showing the quantity demanded at various prices.

  • Total Revenue: Income from selling goods, calculated as Price x Quantity Demanded.

Changes in Demand

  • Change in Quantity Demanded: Movement along the demand curve due to price change.

  • Change in Demand: Shift of the entire demand curve caused by different factors (e.g., income, preferences, number of buyers).

Supply

  • Supply: Amount businesses are willing to provide at a given price.

  • Law of Supply: If price rises ($P↑), quantity supplied also rises ($QS↑) and vice versa.

  • Factors Affecting Supply: Resource prices, technology, laws, number of sellers, future price expectations, weather.

Equilibrium

  • Equilibrium Price: Price at which quantity demanded equals quantity supplied.

  • Surplus: Occurs when supply exceeds demand at a given price.

  • Shortage: Occurs when demand exceeds supply at a given price.

  • Changes in supply or demand shift equilibrium price and quantity.