Demand and Supply

Demand and Supply

* Quantity demanded is the amount (number of units) of a product that a household would buy in a given time period if it could buy all it wanted at the current market price.

* A demand schedule is a table showing how much of a given product a household would be willing to buy at different prices.

* Demand curves are usually derived from demand schedules.

The Law of Demand

The law of demand states that there is a negative, or inverse, relationship between price and the quantity of a good demanded and its price.

A Change in Demand and Shifts in the Demand Curve

When demand shifts to the right, demand increases. This causes quantity demanded to be greater than it was prior to the shift, for each and every price level.

Factors Affecting Demand

1. Population

2. Income is the sum of all households’ wages, salaries, profits, interest payments, rents, and other forms of earnings in a given period of time. It is a flow measure.

Related Goods and Services

* Normal Goods are goods for which demand goes up when income is higher and for which demand goes down when income is lower.

* Inferior Goods are goods for which demand falls when income rises.

3. Price of Related Products

* Substitutes are goods that can serve as replacements for one another; when the price of one increases, demand for the other goes up. Perfect substitutes are identical products.

* Complements are goods that “go together”; a decrease in the price of one results in an increase in demand for the other, and vice versa.

4. Expectation

5. Occasion

6. Preference

* A supply schedule is a table showing how much of a product firms will supply at different prices.

* Quantity supplied represents the number of units of a product that a firm would be willing and able to offer for sale at a particular price during a given time period.

A supply curve is a graph illustrating how much of a product a firm will supply at different prices.

The law...