Download Supply and Demand

Supply and Demand
1. E= equilibrium price: this is the price that
buyers agree to buy at and sellers agree to
sell at.
2. When quantity supplied is constant and
quantity demanded increases (shift to the
right) then a shortage for quantity supplied
is created (shaded area)
3. When quantity supplied is constant and
quantity demanded decreases (shift to the
left) then a surplus for quantity supplied is
created (shaded area)
4. When quantity demanded is constant and
quantity supplied decreases (shift to the left)
then a shortage for quantity demanded is
created (shaded area)
5. When quantity demanded is constant and
quantity supplied increases (shift to the right)
then a surplus for quantity demanded is
created (shaded area)
Economics
-Principle: unlimited wants, limited resources
-Allocate resources in the best possible way
(function of economics) to satisfy wants and needs
-use resources to get the most out of things
(economize)
-Economic Activities:
-3 basic activities
-Production
-Marketing
-Consumption
(they are dependant on each other)
Production: set of activities or processes in making good
and services available.
-Tangible (can touch) => goods
-Intangible (can’t touch) => services
*Once produced => market
Marketing: moving products from where they are produced
to a point where consumers can access products
Consumption: utilize => utility
-use of the service or good
Production: Factors
-land
-capital (fixed =>durable, circulating)
-labour
-entrepreneurship (management)
-fixed (durable):
-long lasting =>capital (land, machinery, equipment).
-Not used everyday
-circulating: used up on a day to day basis =>cash,
money, paper, ink, etc.
-ex: TDC: fuel, ink, paper
Farmer: water, seeds, fertilizer
Labour: aspect needed to put land, capital, and
management together
-3 questions => Production
-What to produce
-How to produce
-How much to produce
(all three done through market research)
Demand
-Law of demand: Consumers are prepared to purchase a
good or service at a given price at a given period of time.
-as price rises, demand falls
-as price falls, demand increases
-Demand schedule: shows the quantity of the commodity
or service demanded and the price associated with the
commodity or service
-Factors to cause an increase in demand are:
-taste and fashion
-quality
-quantity
-advertisement
-brand loyalty
-Factors that will cause a shift in demand
-complimentary goods
-substitute goods
-quality
-choice
-tradition
-culture
-income
-brand loyalty
-taste
-population
-When you speak about demand, you are referring to the
consumers/buyers
Supply
-the quantity of a commodity/service that producers
want to produce at a given price.
-1st Law of supply: as price decreases, suppliers supply
less.
-When you speak about supply, you are referring to the
producer/seller.
Ways the government controls price:
-price ceiling: highest level that price can be set
-price floor: lowest level that price can be set
-price ceiling: protects the customer. The business cannot
set the price too high.
-price floor: protects the producer because a low price
may give the consumer negative thoughts about the product
Market Structures
-Perfect Competition: a large number of small firms
(businesses), each of which sells an identical or
homogeneous product to a large number of buyers.
-both consumers and producers have perfect or
accurate knowledge about the market
-no buyer in the market gets or expects to get
preferential treatment
-firms (businesses) may enter and leave this market as
they so desire because there are no barriers to entry or
exit.
-there is perfect mobility of the factors of production
meaning that workers, capital, managers, and materials can
move to any part of the industry to any firm at any point
in time. There is complete freedom of movement
-each firm within the industry is a price taker. This
means that it accepts the ruling market price within the
industry.
Imperfect Competition
-Monopoly: single supplier of a product
-there are significant barriers to entry and exit.
-Monopolists are profit makers and set the price of
their product
-Monopolists can either set the price of the product
or increase the volume of the production of it but not both
-Monopolists can earn above normal or supernormal
profits in the long run
A monopoly can be harmful (see page. 244)
Monopolistic Competition: a market structure with a large
number of firms producing differentiated products. This
means that the products are basically the same but there
are slight differences for example branding, colour
additives, fragrance changes and so on.
-each firm is a price maker
-there are no barriers to entry and exit
-there is spare capacity in the industry meaning
that there is room for more firms to enter the industry
-the firms are said to be profit maximisers and like
the others produce where marginal costs is equal to
marginal revenue
-the fact that there are no barriers to entry and
exit, firms in the long run may enjoy supernormal profits
-the firms may engage in non-price competition and
likely price competition among themselves
Oligopoly: dominated by a few firms (3-8) so that there is
a high concentration of sales. (see pg 247 for features)
Duopoly: refers to two firms dominating a market. (see pg
245 for features
Cartel: a group of firms or countries coming together to
decide on certain strategies, usually to determine prices of
a products. Example: OPEC. (see pg. 248 for features)