AE

• Demand


  The desire for a particular good by backed up sufficient purchasing power. Demand signifies the ability or the willingness to buy a particular commodity at a given point of time. Demand then refers to the actual purchase of a good or service.
• Supply


  The amount of goods and services available for sale at given prices in a given period of time and place. Supply implies the ability and willingness of sellers to sell.
• Market is place where buyers and sellers interact with each other and that exchange takes place among them.
• In the market, there are different buyers and sellers who will buy or sell different quantities of commodity. Because of this, different behaviors between buyers and sellers exist, thus, a demand / supply schedule also has to exist.
• Demand schedule


  Reflects the quantities of goods and services demanded by a consumer or an aggregate of consumers at any given price.
• Supply schedule


  Shows the different quantities that are offered for sale at various prices.
• Law of demand


  The quantity of a commodity which buyers will buy at a given time and pace will vary inversely with the price. As price increases, quantity demanded decreases, and as price decreases, quantity demanded increases other things are constant.
• Income effect


  Lower prices, an individual has greater purchasing power. This means he can buy more goods and services. But a higher prices, naturally, he can buy less.
• Substitute effect


  Consumers tend to buy goods with lower prices. In case the price of a product that they are buying increases, they look for substitutes whose prices are lower. Thus, the demand for higher-priced goods will decrease.
• Law of supply


  The quantity offered for sale will vary directly with price. As price increases, quantity supplied also increases, and as price and quantity supplied also decreases.
• Producers are willing and able to produce and offer more goods at a higher price than at a lower price. Obviously, sellers offer more goods at higher prices because they make more profits.
• Determinants of demand (non-price factors)


  • Income
  • Population
  • Tastes and preferences
  • Price expectations
  • Prices of related goods
• Income


  People buy more goods and services when their income increases, but will buy less if their income decreases, thus, affecting the demand for goods and services.
• Population


  More people means more demand for goods and services. Less population means less demand for goods and services.
• Tastes and preferences


  Demand for goods and services increases when people like or prefer them. Such tastes or preferences are greatly influenced by advertisement or fashion.
• Price expectations


  When people expect the price of goods to increase, they will buy more. When they expect prices to decrease, they will buy less.
• Prices of related goods


  When the price of a certain good increases, people tend to buy substitute products.
• Determinants of supply


  • Technology
  • Cost of production
  • Number of sellers
  • Taxes and subsidies
  • Weather
• Technology


  Modern technology which uses modern machines increases supply of goods. Traditional technology which uses animal and people is very slow in producing goods. Technology reduces cost of production, and this encourages the producers to increase their supply.
• Cost of production


  When the price of raw materials or the salaries of laborers increases, it means higher cost of production. Higher cost of production decreases supply because the viability or profitability of the business decreases.
• Number of sellers


  More sellers or more factories means an increase in supply. Less sellers or factories mean less supply.
• Taxes and subsidies


  Certain taxes increase cost of production and discourage production. Subsidies reduce cost of production and induce businessmen to produce more.
• Weather


  Production of goods also depends on weather conditions. A businessman will produce more of certain goods during the appropriate season.