Supply and demand

• Market


  A place where buyers and sellers interact with the purpose of exchanging goods and services
• Perfect competition

  • Many sellers selling identical products e.g. Farmers' Markets
• Imperfect competition


  • Many sellers selling similar products e.g. Cosmetic market
• Monopoly


  • Only one seller of goods and services so there is no competition e.g. Irish Rail
• Assumptions about consumers

  • All consumers' income is limited
  • A consumer will act in a way that is Rational
  • Consumers aim to maximise their utility (satisfaction)
  • The more they consume of a product, a point will be reached where they no longer get the same level of satisfaction (law of diminishing marginal utility)
• Law of demand

  Defines the relationship between price and quantity
• Reasons why demand curve shifts to the right


  • Consumer's income increases so they can buy more
  • Price of a substitute good increases (e.g. Borny's Teal increases so quantity demanded of Lyon's Tea increases)
  • Decrease in the price of a complementary good (e.g. shoes cause an increase in the quantity demanded of shoelaces)
  • Consumer's preferences change
  • Consumers expect the product or service to be more expensive in the future
  • Unplanned factors (e.g. good weather increases demand for ice cream)
• Demand curve shifts to the right

  increase in demand, price remains the same
• Demand curve shifts to the left

  decrease in demand, price remains the same
• Reasons why a demand curve shifts to the left

  1. Consumers income decreases to they buy less
  2. Price of a substitute good decreases so consumers buy the substitute good instead
  3. Price of a complementary good increases
  4. As consumer preferences change they may demand less
  5. If consumers expect prices to be lower in the future they will but less now
  6. Unplanned factors - e.g. bad weather causes decrease in demand for outdoor events
• The law of supply states that there is a positive relationship between the price of a good and the quantity supplied of that good
• as price rises so does quantity supplied

  as price falls so does quantity supplied
• Supply curve shifts to the right

  increase in supply, price remains the same
• Supply curve shifts to the left 


  decrease in supply, price remains the same
• Reasons why a supply curve shifts to the right

  1. Cost of production decreases so it is more profitable for the seller
  2. New technology can lead to products being quicker and cheaper to produce
  3. Unplanned factors - e.g. good weather may cause crops to grow faster so farmers sell more
• Reasons why a supply curve shifts to the left

  1. Cost of production increases so the good is less profitable and the supplier will supply less of it
  2. The initial price of new technology is very high and so will decrease sellers profits
  3. Unplanned factors - bad weather may cause crops to not grow so the farmer will sell less
• Equilibrium is the point on the graph where the demand curve meets the supply curve. At this point we can determine equilibrium price and equilibrium quantity
• When demand is greater than supply a shortage occurs and prices rise
• When supply is greater than demand a surplus occurs and prices fall