Lecture notes
Demand and Supply
- Institution
- CCEA
A summary of supply and demand curves, the conditions of supply and demand. Summary of excess demand and excess supply and its affects on the demand and supply curves. Price Determination.
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Conditions of Supply: Conditions of Demand:1. Production Costs: Such as raw materials, electric etc. If costs go up 1. Income: Affects what type of goods we buy. When we have a higher income, consumers are more likely to
production falls as it is more expensive. If these are low, the spend and if we have a lower income, we are less likely to spend. When we have a high income, we are more
business will have more to develop products as it is less expensive likely to buy luxury goods, and if less income is available to spend we are more likely to buy inferior products.
to produce goods. Goods which are neither luxury and inferior are called normal goods, the demand of these goods rise or falls
2. Productivity within the business: The amount the business is able depending on income.
2. Taste/fashion: Different age groups will demand different products/goods according to their own likes. As
to produce wit the resources available to the company. If
taste/fashion changes the demand for specific goods will rise/fall.
productivity rate is high, this is due to the business using their
3. Substitutes/Competition: If a competition carries out a specific action e.g. reducing prices, new design on
resources efficiently, meaning more products are made and
adding new features, can affect the demand of the companies specific item.
productivity rate is high. If you aren't efficient productivity rate 4. Advertising: In theory, the more the company spends on advertisements the more the business should sell.
will fall as less products will be produced. 5. Population: As population changes, demand rises for certain goods. Elderly live longer, increases in demand of
3. Government Activities: Government charges tax and this will have products they require rises. Different sectors of the population grow at different times.
an impact on the cost for the business on production. As tax 6. Government Activities: By raising tax on cigarettes, the demand will fall. Setting minimum price for alcohol. Not
increase/decreases the impact is the same as point 1. The advertising on TV->Ad controls. Reduce demand for goods that are bad for you.
government can give out grants and subsidies the business will
produce more as they have more money to spend on production.
4. Seasonal Variation: Two aspects:
a. Technological: As you get new machinery, the business
Supply Curve:
will become more efficient and produce more. Also, as Demand and
the business maintains the machinery quality will allow Supply
the business to produce more and increase efficiency. E- The diagram shows the shift in the supply curve, as there is a change in
commerce: As you operate in a global market, you may supply.
increase supply. Also, as operation costs are lower, the When supply increases, the supply curve shifts from S to S1.
business may supply more. The diagram shows us when the supply is increased from S to S1.
b. Natural factors: Can impact as if a new oil is discovered This shows how the price equilibrium is lost. We not have dis-equilibrium.
the price of the usual oil will fall, increasing production.
The business will lose profit; to overcome this production is decreased to
c. For certain products, production rates rise during specific
restore the price equilibrium point.
seasons.
Demand Curve:
As demand increases, the demand curve will shift from D to D2.
The price of the product will increase.
As demand decreases, the curve shifts from D to D1, the price
will fall as the demand for the product is less.
In this diagram, demand fall from D to D1 the price goes into dis-
equilibrium, this results in less profit due to the fall in price.
To overcome this, production is reduced, to restore the price
equilibrium as supply will meet demand again.
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