The supply-demand model is a tool that is used to understand the factors that influence the price and quantity of a good and why those prices and quantities change over time.
Supply: the quantity of a good and/or service that producers are willing and able to offer for sale at each possible price during a certain time period
Demand: the quantity of a good or service that buyers are willing to and able to buy at all possible prices during a certain time period
Law of demand: as the price of a good increases, the quantity demand of that good decreases
a→B price decrease leads to increase in quantity demanded
B→ a price increase leads to decreases in quantity demanded
What causes the demand curve to shift
Increase in demand
Change in income
Normal good:Â demand increases when income increases
Inferior good:Â demand decreases when income increases
Change in prices of related goods and service
Substitute: two goods are substitutes, a decrease in the price of one leads to a decrease in demand for another
complements: two goods are complements a decrease in the price of one good leads to an increase in the demand for the other
Law of demand - as the price of a increases the quantity demanded of the that good decreases
Equilibrium - Qd=Qs - quantity demanded=quantity supplied
Demand schedule, supply schedule
Chocolate bar market
4.2 Demand
The Demand Curve: The Relationship between Price and Quantity Demanded:
Quantity demanded-Â the amount of a good that buyers are willing and able to purchase
Law of demand- the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises
Demand schedule- a table that shows the relationship between the price of a good and the quantity demanded
Demand curve- a graph of the relationship between the price of a good and the quantity demanded
Market Demand versus Individual Demand:
Market demand- the sum of all individual demands for a particular good or service
Market demand at each price is the sum of the individuals’ demands
Shifts in the Demand Curve:
Increase in demand- any change that increases the quantity demanded at every price and shifts the demand curve to the right
Decrease in demand- any change that reduces the quantity demanded at every price and shifts the demand curve to the left
There are many variables that can cause a shift in the demand curve
The Supply Curve: The Relationship between Price and Quantity Supplied:
Market Supply versus Individual Supply:
Market supply- the sum of the supplies of all sellers
Shifts in the Supply Curve:
The market supply curve holds other things constant, the curve shifts when one of its factors change
4.3 Supply and Demand Together
Equilibrium:
Equilibrium- a situation in which the market price has reached the level at which quantity supplied equals quantity demanded
Shortage- a situation in which quantity demanded is greater than quantity supplied
Law of supply and demand-Â the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance
Three Steps to Analyzing Changes in Equilibrium: