Demand and supply

demand:

the amount that buyers are willing and able to buy (effective demand)

the law of demand:

the law of demand says price and quantity demanded are inversely related (e.g., the cheaper something is, the more we will buy)

• if the price of a good gets higher, we might:
  • buy less of it
  • do without it
  • buy something else (a substitute)
• if the prices of a good gets cheaper, we mightL
  • buy more of it
  • stop buying a substitute and buy this instead

factors that affect demand

• fashion/taste
• income
• price of substitutes (good in competitive demand)
• price of complements (good in joint demand)
• population
• advertising
• price of products

supply:

the amount of a product a firm is willing and able to supply a market at a given price

law of supply:

the price and quantity sold have a positive relationship (e.g., as the price increases, the firm looks to supply more)

factors that affect supply:

• cost of raw materials
• price selling at
• taxes
• cost of labour
• new technology
• weather
• changes in the size of the industry