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Supply, Demand and Market Equilibrium Essay Plans
- Module
- Principles Of Microeconomics
- Institution
- Loughborough University (LU)
Essay plan bullet point style notes on the topic of supply and demand equilibrium
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Introduction:- Definition of Supply
- Definition of Demand
- Definition of quantity demanded: The amount of a product that consumers wish to purchase
at a given price; not same as demand and isn’t q purchased
- Definition of quantity supplied: The amount of a product that firms wish to supply at a given
price
- Functions of markets: 1. Convery info 2. Provide incentives 3. Allocate resources
- Consumer and Producer Surplus definitions
- Roles of prices (stated)
- Demand and Supply analysis is notably relevant to agricultural products and commodities
such as oil, tea and coffee; Tea prices soaring after droughts in 2009 is as a result of shift in
supply curve left which causes increased prices (Lipsey and Chrystal, 2015)
- Demand and Supply analysis is vital for people trading on commodity markets in predicting
how the price of a commodity is going to change based on factors which may influence
supply and demand.
- It is also vital for businesses in predicting how changes in external factors will affect demand
for their product and hence how they should act and change pricing/production
Main Body:
- Assumptions of Behaviour of buyers and sellers (Who are buyers and sellers depending on
input/final goods market? Firms profit maximise, Individuals utility maximise)
- Law of Demand
- Causes of Demand Shifts: PASIFICE
- Scale and Entry Effects
- Law of Supply
- Shifts in Supply: PINTSWC
- Show Excess Supply/Demand on diagrams; does the market eventually clear?
- Two parts of law of price adjustment: (Excess supply = price decrease, Excess demand = price
rise) and why this happens?
- Show Consumer and Producer surplus on a diagram; any changes to this due to shift of
curve(s)
- Analyse Role of prices
- Do diagrams side by side for substitutes/complements (show effect of shift in curve/price
increase of one good by doing separate diagram on right and showing shift in curve)
- Why is supply upward sloping?
- Why is demand downward sloping: We assume that individuals seek to maximise utility and
this utility is what determines willingness to pay of a consumer. Seen using the vertical
interpretation of the demand curve, for the first unit of a product the consumer has the
utility he gets is marginally very high and hence he has high willingness to pay and hence the
price is very high. However with each additional unit he/she consumes hereafter the
marginal utility they get from consuming that additional unit decreases with each additional
unit consumed and hence the price the consumer is willing to pay lowers with each
additional unit and hence we get the shape of the demand curve. Where consumers only
buy more quantity if price is lower; law of demand
Conclusion:
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