Demand

• Definition of Demand: The willingness and ability of consumers to purchase goods and services.
• Individual Demand: Quantity of a product a single consumer buys based on preferences and income.
• Market Demand: Total quantity of a good that all consumers are willing and able to buy; calculated by summing individual demands at various prices.
• Types of Demand:
  • Market Demand: Quantity demanded by consumers in a market for a given good.
  • Aggregate Demand: Total demand across the entire economy.

Law of Demand

• Principle: All else being equal, as price decreases, quantity demanded increases and vice versa.


• Demand Table Example:
  

• A graphical representation showing the inverse relationship between price and quantity demanded; generally slopes downward reflecting the Law of Demand.

Factors Affecting Demand

• Price: Changes in product price.
• Consumer Preferences: Tastes and preferences impacting purchasing decisions.
• Market Size: Number of consumers in the market.
• Income Levels: Higher income can increase demand for normal goods and decrease for inferior goods.
• Related Goods:
  • Substitutes: Increase in the price of one increases demand for another.
  • Complements: Increase in the price of one decreases demand for another.
• Expectations: Consumer expectations about future prices can affect current demand.
• Population Changes: Size and demographic changes can influence demand.
• Advertising: Promotion can affect consumer desire for a product.

Changes in Demand vs. Changes in Quantity Demanded

• Change in Quantity Demanded: Movement from one point to another on a fixed demand curve due to price change.
• Change in Demand: Shift of the entire demand curve due to changes in other factors affecting demand (left for decrease, right for increase).

Price Elasticity of Demand (PED)

• Definition: Measure of responsiveness of quantity demanded to a price change.
• Elastic Demand: Quantity changes significantly with price changes; consumers are sensitive to price changes.
• Inelastic Demand: Quantity changes minimally with price changes; demand is less sensitive to price fluctuations.

Supply

• Definition of Supply: Willingness and ability of firms to sell different quantities of a good at various prices in a specific time period.
• Market Supply vs. Aggregate Supply: Market supply is the total quantity offered in a market; aggregate supply is total supply in an economy.

Law of Supply

• Principle: There is a positive relationship between the price of a good and the quantity supplied; as prices rise, quantity supplied also increases.

Supply Curve

• Graphical representation of supply showing the relationship between price and quantity supplied; typically slopes upward.

Factors Affecting Supply

• Cost of Production: Higher production costs can decrease supply.
• Technological Advances: Innovations can reduce costs and increase supply.
• Government Policies: Taxes and subsidies can impact supply rates.
• Number of Sellers: More competition can lead to increased supply.
• Expectations of Future Prices: Anticipation of price changes can influence current supply practices.

Changes in Supply vs. Changes in Quantity Supplied

• Change in Quantity Supplied: Movement along the supply curve due to price change.
• Change in Supply: Shift in the supply curve due to changes in other factors (left for decrease, right for increase).

Market Equilibrium

• Definition: Point where quantity supplied equals quantity demanded; determined by the intersection of supply and demand curves.
• Surplus: Occurs when quantity supplied exceeds quantity demanded at a given price; prices tend to decrease.
• Shortage: Occurs when quantity demanded exceeds quantity supplied; leads to price increases.

Changes in Market Equilibrium

• Shifts in demand or supply lead to new equilibrium prices.
• Factors Leading to Change:
  • Shifts in consumer preferences.
  • Changes in production costs.
  • Entry or exit of suppliers in the market.
  • Economic conditions affecting consumer purchasing ability.

Conclusion

• Understanding supply and demand dynamics is essential for analyzing market behavior and economic transactions. Supply and demand laws dictate interactions between buyers and sellers.