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Summary Supply and demand explained

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A summary on supply and demand, covering: demand, supply, equilibrium, price ceiling, price floor, and supply quota. There are graphs to aid your understanding.

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  • February 5, 2022
  • 4
  • 2021/2022
  • Summary
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Demand: Quantities of a good or service that consumers are willing and able to buy at various prices.

Quantity demanded: The amount of goods and services that consumers are willing and able to buy at various prices.

The quantity demanded is a function of:
O The price of the good
O The price of other goods (complementary goods & substitutes)
O Consumer income
O Consumer tastes

Demand Schedule: The table that shows the relationship between price of a good and quantity demanded, holding other
things constant.

Law of demand: The quantity demanded of a good falls when price rises, ceteris paribus.

The demand curve: The curve that shows the relationship between price and quantity demanded




Demand curve Increase in demand Decrease in demand

Price
Price Price




D2
D D1
D1
D2




Factors that may lead to a shift in demand:
O Income normal goods (an increase in income leads to an increase in quantity demanded)
Inferior goods (an increase in income leads to a decrease in quantity demanded)

O Price of related goods (complementary goods and substitutes)

O Consumer tastes and habits (do you like or dislike the good, addictive goods)

O Expectations (income and prices)

O Number of buyers (size of the population)

Only a change in price will lead to a movement along the demand curve.

Supply: Quantity of goods and services that the same amount of sellers are willing and able to sell at various prices.

Quantity supplied: The quantity of goods and services that the same amount of sellers are willing and able to sell at each
specific price.

The supply curve: The curve that show the relationship between price and quantity supplied.

The law of supply: The quantity supplied of a good rises when the price of that good rises, ceteris paribus.

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