Demand and supply

• What is a market?

  any situation where buyers and sellers come into contact in order to exchange goods and services.
• Define demand

  the desire to buy a good or service at a given price by the ability to pay for that good or service.
• What does the law of demand state?

  as price falls, quantity demanded rises
• Why is there an inverse relationship between pride and quantity demanded?

  Real income effect

  Substitution effect
• What is the real income effect?

  When prices rise, people experience a fall in real incomes, making people feel poorer so they will buy less of all goods and services.
• What is the substitution effect?

  when the price of a good rises, it will be substituted with lower priced goods and services. Less is bought of the higher priced good.
• What are the determinants of demand?

  Income

  Price of substitutes

  Price of complements

  Tastes, fashion, crazes

  population changes

  effectiveness of advertising

  social changes

  seasonal demand

  expectations

  government legislation
• Define supply

  The quantity of a good or service that suppliers wish to sell over a range of prices within a time period
• What curve is upward sloping?

  Supply
• Why is there a positive relationship (upward sloping) supply curve?

  Existing suppliers will move more of their resources into the production of this product as they expect higher profit.

  New suppliers will enter the market as they see that there are are higher prices and therefore higher profits to be gained.
• What are the determinants of supply?

  Price of inputs

  Price of other goods (joint supply)

  Technology

  Taxes and subsidies

  Expectations

  Weather

  Seasons

  Natural resources

  Government policy

  World and Political affairs
• What is a movement along the supply curve caused by?

  Change in price