DEMAND, SUPPLY AND PRICES

• Price elasticity measures how much consumers are willing to pay for goods or services.
• FIRMS are the SUPPLIERS

  HOUSEHOLDS are the DEMANDERS
• The demand curve shows the relationship between price and quantity demanded by households (demanders). It is downward sloping because as prices fall, people buy more of that good/service.
• Equilibrium occurs when there is no excess supply or demand - this means that the market has reached its equilibrium point where the quantity demanded equals the quantity supplied.
• The interaction of supply and demand determines the price and quantity of each good and service
• DEMAND

  The quantity of a good or service that POTENTIAL BUYERS are willing and able to purchase at a given price
• Demand is a FLOW VARIABLE