supply and demand

AP Microeconomics Unit 2 – Supply and Demand

Overview

• Focus: Understanding the concepts of supply and demand, their curves, and market equilibrium.

• Importance: Forms the basis for the entire AP Microeconomics experience.

The Demand Curve

• Definition: Represents the sum of all individual demands at specific price points.

• Law of Demand:

  • As price increases, quantity demanded decreases.

  • As price decreases, quantity demanded increases.

• Example:

  • If an orange costs $10, fewer people will buy them.

• Graphical Representation:

  • High prices lead to low quantity demanded.

  • Low prices lead to high quantity demanded.

The Supply Curve

• Definition: Represents the sum of all individual suppliers at specific price points.

• Law of Supply:

  • As price increases, quantity supplied increases.

  • As price decreases, quantity supplied decreases.

• Business Perspective:

  • Businesses aim to maximize profit; higher prices incentivize more output.

• Graphical Representation:

  • High prices lead to high quantity supplied.

  • Low prices lead to low quantity supplied.

Quantity Supplied/Demanded vs. Supply/Demand

• Terminology:

  • Quantity Demanded/Supplied: Actual number demanded or supplied (x value on the graph).

  • Supply/Demand: The curves themselves.

• Key Point:

  • Changes in price affect quantity demanded/supplied but do not shift the supply and demand curves.

Market Equilibrium

• Definition: The point where quantity demanded equals quantity supplied.

• Graphical Importance:

  • This is a fundamental concept in AP Microeconomics, often graphed extensively.

• Equilibrium Price and Quantity:

  • Represented as 'p' (price) and 'q' (quantity) on the graph.

Conclusion

• Foundation for Further Study: Understanding supply and demand is crucial for exploring businesses, firms, and competition