Market Demand & Supply

• Market


  The process of exchanging goods and services between buyers and sellers
• Demand


  Schedule or a curve that shows various amounts of a product that consumers will buy at different possible prices during a specified time
• Demand Schedule


  Demand Curve, Price, and Quantity Demanded of Coffee
• Law of Demand


  The Law shows an inverse (negative) relationship between price and quantity demanded, ceteris paribus. As price falls, quantity demanded rises. As price rises, quantity demanded falls.
• Ceteris Paribus


  All other things remain unchanged while certain variables change
• Why Price and Quantity Demanded are Inversely Related

  Substitution effect: When price of a good rises, buyers will substitute for the other good (substitute good) that has a relatively lower price. Income effect: As price of a good rises, buyer's purchasing power decreases so as quantity demanded. As price of a good falls, buyer's purchasing power rises, so as quantity demanded.
• Individual Demand Curve


  Graph that shows the inverse relationship between price and quantity demanded of an individual
• Market Demand Curve


  Graph that shows the inverse relationship between price and quantity demanded of ALL individuals
• Non-Price Determinants of Demand

  • Number of Buyers
  • Tastes or Preferences
  • Level of Income
  • Consumer Expectation
  • Price of Related Goods
• Supply


  Schedule or a curve that shows various amounts of a product that sellers are willing to produce and offer for sale at different possible prices during a specified period of time
• Supply Schedule


  Supply for Coffee, Supply Curve
• Law of Supply


  A direct (positive) relationship between price and quantity supplied, ceteris paribus. As price rises, quantity supplied rises. As price falls, quantity supplied falls.
• Individual Supply Curve


  Graph that shows the direct relationship between price and quantity supplied of an individual
• Market Supply Curve


  Graph that shows the direct relationship between price and quantity supplied of ALL individuals
• Non-Price Determinants of Supply

  • Number of Sellers
  • Technology
  • Taxes & Subsidies
  • Producers' Expectation
  • Resources Prices
  • Price of Related Goods
• Equilibrium


  The equilibrium or market-clearing price is the price at which the quantity demanded by consumers EQUALS the quantity supplied by producers.
• Surplus


  Quantity supplied exceeds quantity demanded
• Shortage


  Quantity demanded exceeds quantity supplied
• When Dd>Ss


  Customers will bid up the price. Higher price will increase quantity supplied and decrease quantity demanded.
• When Ss>Dd


  Sellers will cut down the price. Lower price will increase quantity demanded and increase quantity supplied.