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Supply and Demand

Supply and Demand. Economic definitions for DEMAND. Demand: the total amount consumers are willing and able to buy at all prices. Demand curve: the graphical representation of what consumers are willing and able to buy.

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Supply and Demand

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  1. Supply and Demand

  2. Economic definitions for DEMAND • Demand: the total amount consumers are willing and able to buy at all prices.

  3. Demand curve: the graphical representation of what consumers are willing and able to buy.

  4. Law of Demand: As price increases/decreases, quantity demanded decreases/increases. P Q P Q

  5. Factors that cause demand to change or shift • Tastes and fads • Income • Number of buyers • Future price expectations • Price and availability of: • Substitutes • compliments

  6. Inelastic Demand: Price still moves up and down but Demand stays the same

  7. Economic definition forSUPPLY • Supply: the total amount of a good or service producers are able to make at all prices.

  8. Supply curve: the graphical representation of a good or service producers are able to make at all prices.

  9. Law of Supply: as price increases/decreases, quantity supplied increases/decreases P Q P Q

  10. Factors that cause a change in supply: • Price of land, labor or capital • Technology • Number of other sellers • Price of other goods I could produce • Tax policy

  11. Equilibrium Point: the point at which the quantity & the price are equal

  12. Economic Equilibrium • Equilibrium is the market clearing price and involves the most efficient choice • Producers and consumers make the most of their limited resources at the least cost • Therefore,producers and consumers act in their own economic self-interest when moving towards equilibrium • At this point the number demanded equals the number supplied

  13. Shortage and Surplus • Shortage occurs when a good or service is priced below the market clearing price • Supply < Demand • Surplus occurs when a good or service is priced above the market clearing price • Supply > Demand

  14. Shortage and Surplus • Both surplus and shortage are inefficient • Both involve missed profit

  15. IRDL “IRDL” will help you! • INCREASE = RIGHT • DECREASE = LEFT

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