Chapter 7 : Demand and supply curves

• Demand curve:

  • Shows the relationship between the price of a good and the quantity consumers are willing to buy
  • Downward sloping: as price increases, quantity demanded decreases
  • Reasons for slope: less money for other goods, expectation of future price increase

  
• Demand curve is crucial for understanding market responses to price changes and determining equilibrium price and quantity

  
• Supply curve:

  • Shows the relationship between price of a good and quantity producers are willing to supply
  • Upward sloping: as price increases, quantity supplied increases
  • Reasons for slope: more profit, cost coverage, new firms entering market

  
• Supply curve also depicts shifts:

  • S1: original supply curve
  • S2: shift to the right, more supply due to factors like decreased production costs or improved technology
  • S3: shift to the left, less supply due to factors like increased production costs or natural disasters

  
• Factors shifting demand curve (PIRATES):

  • P: Population
  • I: Income
  • R: Related goods
  • A: Advertising
  • T: Tastes and fashions
  • E: Expectations
  • S: Seasons
• Factors shifting supply curve (PINTSWC):

  • P: Productivity
  • I: Indirect taxes
  • N: Number of firms
  • T: Technology
  • S: Subsidies
  • W: Weather
  • C: Costs of production
• An increase in demand can occur due to changes in income or tastes
• A shift to the right shows an increase in demand - this means that at any given price there will be more people willing to buy than previously
• The demand curve is downward sloping because as price falls, quantity demanded rises
• Increase in productivity leads to an increase in supply
• Changes in population can affect both demand and supply
• The law of demand states that when the price of a product falls, consumers will purchase more of it.
• Indirect tax on a product will lead to a decrease in its consumption and therefore a decrease in demand.
• Changes in technology lead to a change in the supply curve
• If the government increases subsidies on a product then it becomes cheaper to produce so suppliers are encouraged to produce more which shifts the supply curve outwards
• Demand refers to how much of a particular good or service buyers are willing and able to purchase at different prices during a specific period of time.
• Supply represents the amount of goods or services producers are willing and able to sell at various prices over a certain period of time.
• An increase in income will result in an increase in demand due to the ability to afford more goods and services.
• If the price of a substitute good decreases, the demand for the original good may also decrease.
• When the price of a complementary good increases, the demand for the original good may also decrease.