2.2 + 2.3 Demand & Supply

• Factors that causes a shift in demand

  • Population
  • Advertisement / Social media
  • Income - Real/Income
  • Fashion or trends
  • Substitutes - Butter/Margarine
  • Complimentary - Petrol +Cars
  • Composites - Multiple uses
  • Seasonal factors - ice cream van in the summer
  • Interest Rates
  • Tax
• Size of population/target market

  The number of people in population, or in the target market, affects the demand for a good or service. For example, there is a growing number of pensioners, which leads to an increase in the demand for pensioners holidays.
• Composite supply

  When a good or service can be obtained from different sources.
• Demand

  The quantity of a good/service that consumers are able and willing to buy at a given price during a given period of time
• Individual demand

  Demand of an individual or firm, measured by the quantity bought at a certain price at one point in time
• Joint Demand

  When goods are bought togther
• Market demand

  Sum of all individual demands in a market
• Competitive supply

  When a business could make more than one good with its resources, producing one means they can't produce the other
• Composite supply

  When a good or service can be obtained from different sources.
• Individual supply

  Supply of single firm.
• Joint supply

  Increasing supply of one good causes an increase in the supply of a by - product
• Market supply

  Sum of all individual supplies in the market.
• Supply

  The ability and willingness to provide a particular good/service at a given price at a given moment in time
• Derived demand

  The demand for one good is linked to the demand for a related good.
• Excess demand

  When price is set too low so demand is greater than supply.
• Excess supply

  When price is set too high so supply is greater than demand.
• Evaluation of the impact of demand and supply.

  1. The extent of the substitute. The substitute may be a weak substitute, so people will still pick the pricey ver. 2. The extent of the compliment. Weak complementary goods. 3. The time frame. Whether the price change is short-term or long-term will affect people's decisions. 4. The size of the price change.
• Market

  Where demand and supply interact, the collection of many sub - markets.
• When there is a change in price there will be movement along the demand curve.

  • If there is an increase in price from P1 to P2 there is a contraction of demand and a fall in quantity demanded from Q1 to Q2.
  • If there is a decrease in price from P2 to P1 there is an extension of demand and an increase in quantity demanded from Q2 to Q1.
• Price and quantity supplied are directly proportional, as price increases quantity supplied increases. Suppliers will want to supply more if they can sell at higher prices.
• If price increased from P1 to P2 the quantity supplied would increase from Q1 to Q2. There is movement along the supply curve. The movement from Q1 to Q2 is an extension of supply.

  If the price fell from P2 to P1 there would be a fall in quantity supplied from Q2 to Q1 which would be a contraction of supply.
• Causes of shifts of the supply

  changes to the....

  > cost of production

  > technology

  > productivity

  > weather

  > taxes and subsidies

  > price of related goods

  > expected prices

  > the number of firms in the market.
• Competitive supply is a situation when a producer/firm can use its resources to produce alternative products.

  For example, a farmer could use land for sheep or for cattle. If the price of beef went up, they would be incentivised to use their land for cattle and there would be less land for sheep, so the supply of sheep would fall. In the above diagram the supply of sheep would shift from S to S1.