AE - SUPPLY AND DEMAND

• Market This is where buyers and sellers meet to exchange goods and services
• Free Market Economy - Also known as capitalism.
• Free Market Economy - Adopts a laissez-faire approach with limited government intervention.
• Free Market Economy - Economic players are driven by self-interest.
• Free Market Economy - Also known as socialism or communism.
• Qd is for quantity demanded
• a is for other non-price factors
• b is for the slope of the demand curve
• P is for price
• Quantity Demanded is the number of units that a buyer is willing to purchase at any given price.
• Quantity Demanded - Formula: Qd = a - b(P)
• Effective demand depends on 1. desire 2. means to purchase 3. willingness to use those means for that purchase.
• Quantity Supplied is the number of units that a seller is willing to produce at any given price.
• Quantity Supplied - Formula: Qs = a + b(P)
• Determinants of Supply 1. Technology 2. Number of Sellers 3. Cost of Production 4. Taxes and Subsidies 5. Expectations 6. Weather
• MARKET EQUILIBRIUM (Qd = Qs) Is the state of balance, when the quantity demanded (Qd), is equal to the quantity supplied (Qs).
• The equilibrium quantity is the quantity demanded and the quantity supplied at equilibrium.
• The equilibrium price (also marketing clearing price) is the price where Qd = Qs.
• Demand Curve As the price of goods and services increases, the quantity demanded decreases.
• Supply Curve As the price of goods and services increases, the quantity supplied also increases.
• Market equilibrium exists at the point where demand and supply curves intersect.
• Market Disequilibrium (Qd ≠ Qs) Pertains to the state of imbalance where the quantity demanded (Qd) is equal to the quantity supplied (Qs)
• Shortage (Qd > Qs) excess demand in the market quantity demanded is greater than the quantity supplied. The price falls below the equilibrium price.
• Factors Affecting Shortage a) increase in demand for goods and services b) decrease in the supply of goods and services c) government interventions such as imposing price ceilings
• Surplus (Qd < Qs) excess supply in the market. quantity supplied less than quantity demanded. price is shown above equilibrium price.
• Factors Affecting Surplus a) increase in supply of goods and services b) decrease in demand for goods and services c) government interventions such as imposing price floor