Demand and Supply

• What is meant by demand?

  Quantity of a good bought at a price
• What is meant by supply?

  Quantity of a good offered for sale
• What is equilibrium in a market?

  Point where demand equals supply
• How do demand and supply interact?

  They establish equilibrium through price adjustments
• What are the determinants of demand?

  Factors that influence the quantity demanded
• How do changes in determinants affect price and output?

  They lead to shifts in demand and supply curves
• What is the process to construct a demand and supply diagram?

  1. Identify the price on the Y-axis
  2. Identify the quantity on the X-axis
  3. Plot the demand curve downward
  4. Plot the supply curve upward
  5. Determine the equilibrium point
• What is the effect of excess supply in a market?

  It leads to downward pressure on prices
• What is a market?

  A voluntary meeting of buyers and sellers
• What is the effect of excess demand in a market?

  It leads to upward pressure on prices
• What is a market transaction?

  Exchange between willing buyers and sellers
• What links sellers and buyers in a market?

  The price charged for goods
• What conflict exists between buyers and sellers?

  Sellers want high prices; buyers want low prices
• What happens when prices increase?

  Sellers supply more; buyers demand less
• What is the law of demand?

  Lower prices increase quantity demanded
• What is effective demand?

  Desire for a good backed by ability to pay
• How does income affect demand?

  Higher income increases demand for normal goods
• What is a normal good?

  Demand increases as income increases
• What is an inferior good?

  Demand decreases as income increases
• What are substitute goods?

  Goods that satisfy the same need
• What are complementary goods?

  Goods that are in joint demand
• What happens when the price of a substitute good rises?

  Demand for the other substitute increases
• What happens when the price of a complementary good rises?

  Demand for the other complementary good decreases
• What are the determinants that cause a shift in the demand curve?

  Income, price of other goods, wealth, population
• How does advertising affect demand?

  It can increase demand through promotion
• How does legislation affect demand?

  Government action can shift demand curves
• What is the role of wealth in demand?

  Higher wealth can increase demand for goods
• How do changes in tastes and fashion affect demand?

  They can lead to shifts in demand curves
• How does population change affect demand?

  Increased population typically raises demand
• What is personal disposable income?

  Income after tax and benefits received
• What is the significance of the demand curve's downward slope?

  It reflects the law of demand
• What causes a movement along the demand curve?

  A change in the price itself
• What causes a shift in the demand curve?

  Factors other than price, like income
• What is the relationship between price and quantity demanded?

  Inversely related according to the law of demand
• What is the effect of a rightward shift in the demand curve?

  Increased demand at all price levels
• What is the effect of a leftward shift in the demand curve?

  Decreased demand at all price levels
• What is the impact of advertising on demand?

  It can increase demand for a product
• How does government action influence demand?

  It can shift demand curves through legislation
• What is the relationship between demand and consumer preferences?

  Consumer preferences directly influence demand
• How does the price of a good affect its demand?

  Higher prices typically decrease demand