Understanding Supply and Demand in Economics
Supply and demand are fundamental concepts in economics. Demand is the quantity of a good buyers are willing and able to purchase at various prices, while supply is the quantity of a good producers are willing to sell at different prices. Factors like income changes, taste preferences, and prices of complementary or substitute goods influence both demand and supply. More sellers in a market typically lead to a greater quantity supplied. These dynamics affect pricing and market equilibrium.
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Demand is the amount of a good or service that buyers are willing and able to buy at all prices during some time period. The demand curve depicts the demand for a good or service. a Price The equation for this graph is P = a b Q P a is the intercept on the Price or (y) axis and b is the gradient of the graph Q Quantity 2
The supply curve depicts the supply of a good or service. It shows the quantity of a good or service that producers are willing and able to sell at all possible prices during some time period. Price The equation for this graph is P = a + b Q P a is the intercept on the Price or (y) axis and b is the gradient of the graph a Q Quantity 3
Factors other than the price of a good or service that change (shift) the demand schedule, causing consumers to buy more or less at every price. 4
Change in income: With a higher income (lower income) consumers are willing and able to buy more (less) of a product at every price. Change in tastes or preferences: If a study reveals that cookies are nutritious, the demand for cookies probably would increase. If a study found cookies are harmful, the demand for cookies would probably decrease. The number of consumers in the market is a demand. 5
Change in the price of complementary goods. If the price of hot chocolate increases, people will drink less hot chocolate and may buy fewer cookies to eat with hot chocolate. As a result, the demand for cookies decreases. If the price of hot chocolate decreases, people will drink more hot chocolate and will buy more cookies to eat with hot chocolate, so the demand for cookies will increase. Change in the price of substitute goods. If the price of eggs goes up, consumers may substitute cereal for breakfast. As a result the demand for cereal will increase. If the price of eggs decreases, please may eat less cereal. As a result the demand for cereal decreases. 6
Factors other than the price of a good or service that change (shift) the supply schedule, causing producers to supply more or less at every price. 7
Greater the number of sellers, greater will be the quantity of a product or service supplied in a market and vice versa. Thus increase in number of sellers will increase supply and shift the supply curve rightwards whereas decrease in number of sellers will decrease the supply and shift the supply curve leftwards. For example, when more firms enter an industry, the number of sellers increases thus increasing the supply. 8 Termsexplained.com
A newly released study shows that battery-operated toys harm a child's development. How will this affect the market for battery-operated toys? 9
Due to a price hike the wages of laborers on wheat farms increased by 10% over the last year. How could this affect the wheat market? 10
The price of iPhones decreases. What will be the effect on the market for sim cards used in iPhones? 11
The world price of low grade coal, used to generate electricity, increased drastically in the last 3 months. How could this possibly affect the market for household gas? 12
A more efficient way to trap crabs has been invented. What will be the affect on the market for tinned crab meat? 13
