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Supply and Demand

Learn the economic definitions for demand and supply, factors influencing them, equilibrium point, shortage, surplus, and how producers and consumers act towards equilibrium. Discover the Law of Demand and Law of Supply, and more.

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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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