Download Demand and Supply

Demand and Supply
Markets

Markets are where
demanders and
suppliers come
together

Can be local to
international
Demand

The amounts of a product
that consumers are able
and willing to purchase
at various different prices

Can show the same
information on a
demand schedule

Needs to include a time
period (per week in this
example)
Law of Demand

All else equal, as price
goes up, demand
drops

As price goes down,
demand rises

Why does this inverse
relationship exist?
Law of Demand

Reasons for inverse
relationship
– Price is an obstacle for
consumers
– Decreased marginal
utility- Less satisfaction
for each extra unit bought.
Price must be decreased to
make it worthwhile
– Income effect- lower
prices increase purchasing
power
– Substitution effectreplace expensive good
with a cheaper alternative
Demand Curve

Can have an
individual demand
curve or a market
demand curve (as
seen here)

Market demand curve
is based on a
combination of
individual demands
Demand Curve

Moving from one point
along the curve to
another based on a price
difference is not a change
in demand- this is a
change in quantity
demanded

A change in demand
occurs when, at a given
price point, the demand
increases or decreases
Demand

What will lead to a
change in demand?
Change in Demand
Taste
 Number of buyers
 Income
 Prices of related
goods

– Substitute goods
– Complimentary goods

Consumer
expectations
– will prices rise or fall in
the future
Law of Supply

As price rises, the
quantity supplied
rises, as price
decreases, the
quantity supplied
decreases

Why would this be?
Law of Supply

To produce more of a
good costs the
manufacturer more of
a marginal cost- it’s
only worth producing
if you can charge
more for it

A farmer might
change his crops
based on what he can
charge the most for
Change in Supply

Why might supply
change?
Change in Supply

Determinants of
Supply
–
–
–
–
–
Resource prices
Technology
Taxes and subsidies
Prices of other goods
Producer expectations
about the future
– Number of sellers