Demand & Supply

• Supply


  The quantity of a product that producers are willing to sell at a given price
• Supply Schedule


  Shows how much a firm is willing to supply at what prices
• Supply Curve


  Graph that illustrates the quantity that a seller is willing and able to supply at a series of price points
• An improvement in Supply Conditions


  Will cause the supply curve to shift to the right
• A negative Change in supply conditions


  Will cause the supply curve to shift to the left
• Other factors affecting Supply

  • Environmental Conditions
  • Production costs
  • Technology
  • Number of suppliers
  • Expectations of sellers
  • Government intervention
• Weather can impact the supply of Crops available
• When costs are low


  More goods will be supplied at all different price levels, causing the supply curve to shift right
• New Suppliers enter market

  Supply will increase, prices will fall
• Sellers expect price to increase


  Sellers may store their current supplies and sell them at a higher price in the future
• Higher taxes


  Will increase costs, and reduce supply
• Quotas


  Will reduce supply (A limit on the amount that can be produced)
• Market equilibrium


  The price point at which the quantity supplied equals the quantity demanded
• Market


  Where buyers and sellers meet
• Types of markets


  • Final markets
  • Factor markets
  • Commodities markets
• Final markets


  Places where finished goods and services are bought and sold, e.g. Aldi, Lidl
• Factor markets


  Where the factors of production are bought and sold, e.g. property
• Commodities markets


  Where raw materials used in the production of goods and services are bought and sold, e.g. milk
• Businesses must decide what to supply to customers
• Businesses make assumptions on consumer behaviours
• Assumptions about consumer behaviour

  • Consumers have limited income
  • Consumers hope to make choices to best meet needs and wants
  • Most customers make rational decisions
  • The law of diminishing marginal utility applies
• Demand


  The quantity of a product that buyers are willing to purchase at a given price
• As price increases


  Quantity demanded decreases
• As price decreases


  Quantity demanded increases
• Demand curve


  A graph that shows the relationship between the price of goods and services and the quantity of these goods and services that consumers will purchase at that price
• Demand schedule


  Shows the number of goods demanded at different price levels
• Reasons for the downward sloping demand curve


  • Income effect
  • Substitution effect
  • Law of diminishing marginal utility
• Income effect


  When prices rise, a consumer is less able to purchase something
• Substitution effect


  If there's a substitute for a good, you will be less willing and able to buy the good if the substitute is cheaper
• Law of diminishing marginal utility


  Goods lose usefulness each time another is consumed/purchased
• When price increases


  Demand will fall
• When price decreases


  Demand will increase
• If the price of substitute products is reduced


  Consumers will demand more of the substitute, which may reduce demand for other products