Chapter 3

• Demand


  Quantity of a good or service that consumers are willing & able to buy
• Main conditions of demand

  • Price of substitutes
  • Personal disposable income
  • Tastes and preferences
  • Price of complementary goods
  • Interest rates
  • Population size
• Supply


  Quantity of a good or service that firms or producers are willing and able to supply
• Main conditions of supply

  • Costs of production
  • Technology
  • Taxes
  • Subsidies
  • Weather
• Supply


  1. Increase

  2. Decrease
• A rightward shift in supply may be caused by

  • Decrease in the cost of production
  • Improvement in technology
  • Increase in the number of firms in an industry
  • Subsidies
  • Favourable weather
• Equilibrium price and quantity


  The point at which demand is equal to supply
• Any point where demand does not equal supply is referred to as disequilibrium
• At any point above the equilibrium price there is excess supply, and at any price below the equilibrium price there is excess demand
• Total Revenue


  Selling price x Quantity sold
• Complementary good


  A good which is demanded because it is used with another good
• Substitute good


  A good which can be replaced by another good
• Price Elasticity of Demand (PED)


  The responsiveness of quantity demanded to a change in price
• Factors affecting PED


  • Substitutability
  • Percentage of income
  • Time
• Measuring PED


  Percentage change in quantity demanded / Percentage change in price