Supply and demand

• Market


  A group of buyers and sellers who want to trade a good or a service
• Competitive market


  • Many small buyers and many small sellers so no individual buyer or seller can influence the price
• Demand


  The response of buyers to changes in the market environment
• Supply


  The response of sellers to changes in the market environment
• Demand schedule


  Describes how the quantity demanded for a good changes, as result of the change in the market price, when all the other variables that can affect the quantity demanded, remains unchanged
• Law of demand


  The price and quantity demanded are inversely related, when all else that affects demand remains constant
• Increase in income


  Increases the peoples ability to buy energy bars, which can either increase or decrease demand for energy bars depending on whether they are a normal or inferior good
• Increase in price of substitute goods


  Shifts the demand for energy bars outwards (increases demand)
• Decrease in price of complementary goods


  Shifts the demand for energy bars outwards (increases demand)
• Increase in number of buyers


  Shifts the demand for energy bars outwards (increases demand)
• Expectation of future price increase

  Increases current demand
• Increase in health consciousness

  Increases demand for energy bars
• Supply


  Describes the sellers' side of the market, showing the relationship between quantity supplied and variables that affect the decision to supply
• Supply schedule


  Describes how the quantity supplied for a good changes, as result of the change in the market price, when all the other variables that can affect the quantity supplied remains unchanged
• Law of supply


  The price and quantity supplied of a good are positively related when all other variables that affect supply remain constant
• Increase in price of inputs

  Decreases supply
• Increase in price of related goods


  Decreases supply of the good as sellers shift to selling the related good
• Technological innovation reducing production cost

  Increases supply
• Entry of new firms

  Increases supply
• Expectation of future price increase

  Decreases current supply as sellers hold stock to sell later
• Equilibrium price


  The price at which quantity demanded is equal to quantity supplied
• Any price other than the equilibrium price is not sustainable as there will be either excess supply or excess demand</b>
• demand curve: shows the relationship between the quantity demanded of a good and price when all other influences on consumers planned purchases remain the same
• a normal good is one for which demand increase as income increase
• an inferior good is one which demand decrease as income increase
• Changes in Demand The demand for energy bars

  Decreases if:

  • The price of a substitute falls

  • The price of a complement rises

  • The expected future price of an energy bar falls

  • Income falls*

  • Expected future income falls or credit becomes harder to get*

  • The population decreases
• Changes in demand Increases if:

  • The price of a substitute rises

  • The price of a complement falls

  • The expected future price of an energy bar rises

  • Income rises*

  • Expected future income rises or credit becomes easier to get*

  • The population increases
• Changes in Supply

  The supply of energy bars Decreases if:

  • The price of a factor of production used to produce energy bars rises
  • The price of a substitute in production rises
  • The price of a complement in production falls
  • The expected future price of an energy bar rises
  • The number of suppliers of bars decreases
  • A technology change decreases energy bar production
  • A natural event decreases energy bar production
• Increases if:

  • The price of a factor of production used to produce energy bars falls

  • The price of a substitute in production falls

  The price of a complement in production rises

  • The expected future price of an energy bar falls

  • The number of suppliers of bars increases

  • A technology change increases energy bar production

  • A natural event increases energy bar production
•  An increase in demand brings a rise in the price and an increase in the quantity supplied. A decrease in demand brings a fall in the price and a decrease in the quantity supplied.
• An increase in supply brings a fall in the price and an increase in the quantity demanded. A decrease in supply brings a rise in the price and a decrease in the quantity demanded.
• When a shortage exists, the price rise
• when a surplus exists, the price falls
• an increase in demand will lead to higher prices and quantity sold, while a decrease in supply will lead to higher prices and lower quantity sold
• Conversely, a decrease in demand or an increase in supply will lead to lower prices and quantity sold.
• price adjustment eliminates a shortage by as the price rise, the quantity demanded decreases while the quantity supplied increase
• as the price falls, the quantity demanded increases while the quantity supplied decreases is elimates the surplus
• complement is a good that is used in conjection with another good
• substitute is a good that can be used in place of another good