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economists use most often. Supply and Demand are the forces that make market economies work! Modern economics is about supply, demand, and market equilibrium.
behaviour of people as they interact with one another in markets. A market is a group of buyers and sellers of a
particular good or service.
Buyers determine demand...
Demand
Quantity of a good or service that buyers are willing to purchase at a specific selling price
needs ands wants of consumers. In economics, demand refers to how much (quantity) of a product or service is desired by buyers
I. 3. Demand Schedule
A demand schedule shows how much of a good or service consumers will want to buy at different prices Demand Schedule for Tickets
Price ($ per ticket) 350 300 250 200 Quantity demanded (tickets) 5,000 6,000 8,000 11,000
150
100
15,000
20,000
The quantity demanded is the actual amount consumers want to buy at some specific price.
If the scalpers are charging $250 per ticket, 8,000 tickets will be purchased
8,000
A demand curve is the graphical representation of the demand schedule; it shows how much of a good or service consumers want to buy at any given price.
The law of demand says that a higher price for a good, other things equal, leads people to demand a smaller quantity of the good
If the price drops to $100, 20,000 fans want to buy tickets
At $250, only 8,000
This The reflects law of the demand general Note to that the demand points proposition the that inverse a higher curve slopes downward price reduces relationship between the number price and of people the quantity willing to buy a demanded. good
remains the same, the quantity of the good demanded will fall (e.g., air travel, magazines, education, etc)
The words, everything else remains the same are important
In the real world many variables change simultaneously However, in order to understand the economy we must first understand each variable separately Thus we assume that, everything else remains the same, in order to understand how demand reacts to price
producers can satisfy consumers needs and wants In economics, supply refers to the desire and ability that sellers and producers can satisfy consumers demand
Quantity supplied
10 20 30 40
A supply curve shows graphically how much of a good or service people are willing to sell at any given price.
The the Just higher as demand price being curves normally offered, the more slope downwards, people will be supply curves willing to slope part with normally their hockey upwards tickets
everything else remains the same, the quantity of the good supplied will rise
The words, everything else remains the same are
important
In the real world many variables change simultaneously However, in order to understand the economy we must first understand each variable separately We assume everything else remains the same in order to understand how supply reacts to price
Different sellers in the market give consumers different prices of the product Market price is the one at which the quantity demanded is equal to the quantity supplied. E.g. It satisfies both seller and consumers
tickets
has reached the level where quantity supplied equals quantity demanded.
Equilibrium
Equilibrium Price The price that balances quantity supplied and quantity demanded. On a graph, it is the price at which the supply and demand curves intersect. Equilibrium Quantity The quantity supplied and the quantity demanded at the equilibrium price. On a graph it is the quantity at which the supply and demand curves intersect.
Supply Schedule
Supply
Equilibrium price
Equilibrium
$2.00
Demand
Equilibrium quantity
10
11
There is excess supply or a surplus. Suppliers will lower the price to increase sales, thereby moving toward equilibrium.
Shortage When price < equilibrium price, then quantity demanded > the quantity supplied.
There is excess demand or a shortage. Suppliers will raise the price due to too many buyers chasing too few goods, thereby moving toward equilibrium.
Surplus
$2.50
Supply
$2.00
Demand
4
Quantity Demanded
10
Quantity Supplied
11
Why Does the Market Price Fall if It Is Above the Equilibrium Price?
Lets say the market price of $350 is above the equilibrium price of $250
This creates a surplus This surplus will push the price down until it reaches the equilibrium price of $250
There is a surplus of a good when the quantity supplied exceeds the quantity demanded. Surpluses occur when the price is above its equilibrium level.
Why Does the Market Price Rise if It Is Below the Equilibrium Price?
Lets say the market price of $150 is below the equilibrium price of $250 This creates a shortage This shortage will push the price up until it reaches the equilibrium price of $250
There is a shortage of a good when the quantity demanded exceeds the quantity supplied. Shortages occur when the price is below its equilibrium level.
Supply
$2.00
$1.50
Shortage
Demand
4
Quantity Supplied
10
11
Quantity Demanded
Exess demand
Exess Supply