Economics
Supply and Demand
Supply and demand is a fundamental concept in economics that describes the relationship between the quantity of a good or service that producers are willing to supply and the quantity that consumers are willing to buy. It is represented graphically as the intersection of the supply and demand curves, which determines the equilibrium price and quantity in a market. When supply and demand are in balance, it leads to an efficient allocation of resources.
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11 Key excerpts on "Supply and Demand"
eBook - PDF- Steven A. Greenlaw, Timothy Taylor(Authors)
- 2014(Publication Date)
- Openstax(Publisher)
When economists talk about quantity demanded, they mean only a certain point on the demand curve, or one quantity on the demand schedule. In short, demand refers to the curve and quantity demanded refers to the (specific) point on the curve. Supply of Goods and Services When economists talk about supply, they mean the amount of some good or service a producer is willing to supply at each price. Price is what the producer receives for selling one unit of a good or service. A rise in price almost always leads to an increase in the quantity supplied of that good or service, while a fall in price will decrease the quantity supplied. When the price of gasoline rises, for example, it encourages profit-seeking firms to take several actions: expand exploration for oil reserves; drill for more oil; invest in more pipelines and oil tankers to bring the oil to plants where it can be refined into gasoline; build new oil refineries; purchase additional pipelines and trucks to ship the gasoline to gas stations; and open more gas stations or keep existing gas stations open longer hours. Economists call this positive relationship between price and quantity supplied—that a higher price leads to a higher quantity supplied and a lower price leads to a lower quantity supplied—the law of supply. The law of supply assumes that all other variables that affect supply (to be explained in the next module) are held constant. Still unsure about the different types of supply? See the following Clear It Up feature. Is supply the same as quantity supplied? In economic terminology, supply is not the same as quantity supplied. When economists refer to supply, they mean the relationship between a range of prices and the quantities supplied at those prices, a relationship that can be illustrated with a supply curve or a supply schedule. When economists refer to quantity supplied, they mean only a certain point on the supply curve, or one quantity on the supply schedule.
eBook - PDF- Rhona C. Free(Author)
- 2010(Publication Date)
- SAGE Publications, Inc(Publisher)
7 SUPPLY, DEMAND, AND EQUILIBRIUM KEVIN C. KLEIN Illinois College T he underlying foundation for much of the content for all other chapters in this reference manual is the economic concepts of Supply and Demand. In reading this chapter, you will begin to understand the basic concepts of Supply and Demand and how changes in the actions of buyers and sellers influence market prices. Markets are defined as any place where products or resources are exchanged. Every market has two sides: buy-ers and sellers. Buyers, or demanders, are those who pur-chase the product or resources. Sellers, or suppliers, are those who provide the products or resources for sale in the market. What motivates these market participants? Although many factors motivate buyers' and sellers' behavior, economists assume that the primary motivating factor is self-interest. Buyers are assumed to be motivated by their desire to improve overall satisfaction, or utility, in life. Sellers are assumed to be motivated by the desire to earn profits. The discussion below begins with the buyer side of the market, known as demand. Demand Let us begin our discussion of demand by defining three concepts: demand (D), quantity demanded (Q d ), and the law of demand. Demand is defined as the amount of a product that buyers are willing and able to purchase at all prices. A consumer is said to demand a product if he or she is both willing and able to purchase a product. A consumer who is willing to purchase a product, but is unable to do so, is not considered to be part of the market demand because he or she will not actually purchase the product. Likewise, a consumer who is able but unwilling to buy a product is also not considered to be part of market demand. Quantity demanded is defined to be the amount of a product that buyers are willing and able to purchase at a specific price.
- Berkeley Hill(Author)
- 2013(Publication Date)
- Pergamon(Publisher)
For example, if income tax is increased on unmarried men and decreased on married men, leaving in taste towards good Swing in taste away from the good 62 An Introduction to Economics for Students of Agriculture average spendable income unchanged, it could be expected that the demand for sports cars in the country as a whole would decline but the demand for family saloons would increase. SHIFTS ALONG THE DEMAND CURVE AND SHIFTS OF THE WHOLE DEMAND CURVE FOR A COMMODITY To conclude this section on demand, it is worth recapitulating on the ways the factors described above affect the demand curve. A demand curve shows the quantities of a commodity which consumers are willing and able to take from the market at a range of given prices of the com-modity. If the price of the commodity is altered, because a shift in the supply curve causes the demand curve and the supply curve to intersect at a different level, more (or less) will be bought; this involves a move-ment along the demand curve. However, the whole curve will be shifted to the left or right by a change in consumer income, a change in the prices of competitive or complementary goods, changes in taste, popula-tion changes or a change in the distribution of incomes between house-holds. Having considered the demand for commodities in detail, the same approach will now be adopted to the supply of goods and services. B. The Theory of Supply THE MEANING OF SUPPLY AND FACTORS WHICH DETERMINE IT The supply of a commodity can be defined as the quantity that pro-ducers are willing and able to offer for sale in a given time period. Like demand, supply is a flow of goods and services. The supply of any good depends on five factors: (a) the price of the good (PA) (b) the prices of other goods which firms could produce or do produce (PB, .... ΛΟ (c) the prices of factors of production i.e.
eBook - PDF- Colin Harbury(Author)
- 2014(Publication Date)
- Pergamon(Publisher)
CHAPTER 2 Supply and Demand The work of this chapter is devoted to questions of resource allocation in the market for a single commodity. Resource allocation by the price mechanism is analysed with the use of the concepts of Supply and Demand. In a market economy, resources are directed to the production of different goods by movements in their relative prices. If people want to purchase a good and price covers the cost of production, it is assumed that businesses will engage in its production in order to make a profit. If the price of a good is such that the amount which consumers wish to buy is not the same as the amount which suppliers are prepared to offer for sale, there will be some pressure on its price. If, on the other hand, price is such as to clear the market exactly with no disappointed consumers or producers, then the price and the market are said to be in EQUILIBRIUM. If price is above equilibrium there is excess supply of the good and producers will tend to compete with each other by lowering price. If the price is below equilibrium there is excess demand and some consumers will be prepared to pay more for the good, which will tend to push the price up. In such cases equilibrium is said to be stable, in that deviations from equilibrium set up economic forces which restore equilibrium. In some cases, e.g. when there are time lags between price and quantity changes, equilibrium may be unstable, when divergencies from equilibrium are not self-restoring. However, when a change occurs in the conditions of either supply or demand, such a reduction in costs or a shift in tastes, in so far as it exerts pressure on the price of a good, it will normally set up market forces leading towards a new equilibrium. The forces of Supply and Demand working through the price mechanism can be thought of as helping to solve the central economic problems of any society. Prices act, as it were, as signals which perform two functions.
eBook - PDF- Steven A. Greenlaw, David Shapiro, Daniel MacDonald(Authors)
- 2022(Publication Date)
- Openstax(Publisher)
demand social surplus the sum of consumer surplus and producer surplus substitute a good that can replace another to some extent, so that greater consumption of one good can mean less of the other supply the relationship between price and the quantity supplied of a certain good or service supply curve a line that shows the relationship between price and quantity supplied on a graph, with quantity supplied on the horizontal axis and price on the vertical axis supply schedule a table that shows a range of prices for a good or service and the quantity supplied at each price surplus at the existing price, quantity supplied exceeds the quantity demanded; also called excess supply total surplus see social surplus Key Concepts and Summary 3.1 Demand, Supply, and Equilibrium in Markets for Goods and Services A demand schedule is a table that shows the quantity demanded at different prices in the market. A demand curve shows the relationship between quantity demanded and price in a given market on a graph. The law of demand states that a higher price typically leads to a lower quantity demanded. A supply schedule is a table that shows the quantity supplied at different prices in the market. A supply curve shows the relationship between quantity supplied and price on a graph. The law of supply says that a higher price typically leads to a higher quantity supplied. The equilibrium price and equilibrium quantity occur where the Supply and Demand curves cross. The equilibrium occurs where the quantity demanded is equal to the quantity supplied. If the price is below the equilibrium level, then the quantity demanded will exceed the quantity supplied. Excess demand or a shortage will exist. If the price is above the equilibrium level, then the quantity supplied will exceed the quantity demanded. Excess supply or a surplus will exist. In either case, economic pressures will push the price toward the equilibrium level.
eBook - PDFEconomics
Theory and Practice
- Patrick J. Welch, Gerry F. Welch(Authors)
- 2016(Publication Date)
- Wiley(Publisher)
On this graph, price appears on the vertical axis (measured in 20‐cent intervals) and quantity demanded appears on the horizontal axis (in two‐bagel increments). When we plot each price–quantity combination from the demand schedule in Table 3.1 and then connect those points with a line, we call the resulting downward‐sloping line a demand curve. Recall from Chapter 1 that down- ward‐sloping lines such as this demand curve represent inverse relationships. Since the Law of Demand predicts this type of inverse relationship between price and quan- tity demanded, we can generalize that demand curves slope downward: Consumers normally demand more at lower prices and less at higher prices. Supply: The Seller’s Side Economists refer to supply as a seller’s plan to make a good or service available in the market. Like demand, supply depends on the product’s price and any nonprice factors that influence the seller, such as the cost of producing the product and the seller’s expectation of future market conditions. Supply, Defined Economists define supply as the different amounts of a good or service that a seller would make available for sale at different prices in a given time Law of Demand There is an inverse relationship between the price of a product and the quantity demanded. Demand Curve A line on a graph that illustrates a demand schedule; slopes downward because of the inverse relationship between price and quantity demanded. Supply The different amounts of a product that a seller would make available for sale at different prices in a defined time period when all nonprice factors are held constant. 56 Chapter 3 Demand, Supply, and Price Determination period, holding constant all nonprice factors that affect the seller’s plans for the prod- uct. In other words, supply indicates how many hot fudge sundaes, haircuts, tires, or any other product a supplier would be willing to sell at different prices during a week, a month, or a year, with all nonprice factors unchanged.
eBook - PDFMicroeconomics
Theory and Applications
- Edgar K. Browning, Mark A. Zupan(Authors)
- 2019(Publication Date)
- Wiley(Publisher)
Learning Objectives • Understand how the behavior of buyers and sellers can be characterized through demand and supply curves. • Explain how equilibrium price and quantity are determined in a market for a good or service. • Analyze how a market equilibrium is affected by changes in demand or supply. • Explore the effects of government intervention in markets and how a price ceiling impacts price, quantity supplied, quantity demanded, and the welfare of buyers and sellers. • Show how elasticities provide a quantitative measure of the responsiveness of quantity demanded or supplied to a change in some other variable such as price or income. • *Explain the mathematics associated with elasticities. 14 Chapter Two • Supply and Demand • Demand and Supply Curves Markets are composed of buyers and sellers. Our analysis of the behavior of buyers relies on demand curves; supply curves depict the behavior of sellers. Let’s begin with the buyer, or demand, side of the market. The Demand Curve The amount of a good that a consumer or a group of consumers wishes to purchase depends on many factors: income, age, occupation, education, experience, buyer preferences, taxes, subsidies, expectations, and so on. It also depends on the price of the good. According to the law of demand, the lower the price of a good, the larger the quantity consumers wish to pur- chase. To this law we must add an important condition. The relationship will hold only if the other factors affecting consumption, such as income and preferences, do not change at the same time that the good’s price changes. The assumption that all other factors remain constant is an important one to keep in mind when examining many relationships in economics. Figure 2.1 shows a hypothetical market demand curve for 55-inch flat-screen televisions (TVs). At each possible price, the curve identifies the total quantity desired by consumers.
eBook - PDF- Steven A. Greenlaw, Timothy Taylor, David Shapiro(Authors)
- 2017(Publication Date)
- Openstax(Publisher)
A demand curve shows the relationship between quantity demanded and price in a given market on a graph. The law of demand states that a higher price typically leads to a lower quantity demanded. A supply schedule is a table that shows the quantity supplied at different prices in the market. A supply curve shows the relationship between quantity supplied and price on a graph. The law of supply says that a higher price typically leads to a higher quantity supplied. The equilibrium price and equilibrium quantity occur where the Supply and Demand curves cross. The equilibrium occurs where the quantity demanded is equal to the quantity supplied. If the price is below the equilibrium level, then the quantity demanded will exceed the quantity supplied. Excess demand or a shortage will exist. If the price is above the equilibrium level, then the quantity supplied will exceed the quantity demanded. Excess supply or a surplus will exist. In either case, economic pressures will push the price toward the equilibrium level. 3.2 Shifts in Demand and Supply for Goods and Services Economists often use the ceteris paribus or “other things being equal” assumption: while examining the economic impact of one event, all other factors remain unchanged for analysis purposes. Factors that can shift the demand curve for goods and services, causing a different quantity to be demanded at any given price, include changes in tastes, population, income, prices of substitute or complement goods, and expectations about future conditions and prices. Factors that can shift the supply curve for goods and services, causing a different quantity to be supplied at any given price, include input prices, natural conditions, changes in technology, and government taxes, regulations, or subsidies. 76 Chapter 3 | Demand and Supply This OpenStax book is available for free at http://cnx.org/content/col12170/1.7
- Steven A. Greenlaw, Timothy Taylor, David Shapiro(Authors)
- 2017(Publication Date)
- Openstax(Publisher)
A demand curve shows the relationship between quantity demanded and price in a given market on a graph. The law of demand states that a higher price typically leads to a lower quantity demanded. A supply schedule is a table that shows the quantity supplied at different prices in the market. A supply curve shows the relationship between quantity supplied and price on a graph. The law of supply says that a higher price typically leads to a higher quantity supplied. The equilibrium price and equilibrium quantity occur where the Supply and Demand curves cross. The equilibrium occurs where the quantity demanded is equal to the quantity supplied. If the price is below the equilibrium level, then the quantity demanded will exceed the quantity supplied. Excess demand or a shortage will exist. If the price is above the equilibrium level, then the quantity supplied will exceed the quantity demanded. Excess supply or a surplus will exist. In either case, economic pressures will push the price toward the equilibrium level. 3.2 Shifts in Demand and Supply for Goods and Services Economists often use the ceteris paribus or “other things being equal” assumption: while examining the economic impact of one event, all other factors remain unchanged for analysis purposes. Factors that can shift the demand curve for goods and services, causing a different quantity to be demanded at any given price, include changes in tastes, population, income, prices of substitute or complement goods, and expectations about future conditions and prices. Factors that can shift the supply curve for goods and services, causing a different quantity to be supplied at any given price, include input prices, natural conditions, changes in technology, and government taxes, regulations, or subsidies. 76 Chapter 3 | Demand and Supply This OpenStax book is available for free at http://cnx.org/content/col23729/1.3
eBook - PDF- Steven A. Greenlaw, Timothy Taylor, David Shapiro(Authors)
- 2017(Publication Date)
- Openstax(Publisher)
A demand curve shows the relationship between quantity demanded and price in a given market on a graph. The law of demand states that a higher price typically leads to a lower quantity demanded. A supply schedule is a table that shows the quantity supplied at different prices in the market. A supply curve shows the relationship between quantity supplied and price on a graph. The law of supply says that a higher price typically leads to a higher quantity supplied. The equilibrium price and equilibrium quantity occur where the Supply and Demand curves cross. The equilibrium occurs where the quantity demanded is equal to the quantity supplied. If the price is below the equilibrium level, then the quantity demanded will exceed the quantity supplied. Excess demand or a shortage will exist. If the price is above the equilibrium level, then the quantity supplied will exceed the quantity demanded. Excess supply or a surplus will exist. In either case, economic pressures will push the price toward the equilibrium level. 3.2 Shifts in Demand and Supply for Goods and Services Economists often use the ceteris paribus or “other things being equal” assumption: while examining the economic impact of one event, all other factors remain unchanged for analysis purposes. Factors that can shift the demand curve for goods and services, causing a different quantity to be demanded at any given price, include changes in tastes, population, income, prices of substitute or complement goods, and expectations about future conditions and prices. Factors that can shift the supply curve for goods and services, causing a different quantity to be supplied at any given price, include input prices, natural conditions, changes in technology, and government taxes, regulations, or subsidies. 76 Chapter 3 | Demand and Supply This OpenStax book is available for free at http://cnx.org/content/col12122/1.4
eBook - PDF- Steven A. Greenlaw, Timothy Taylor, David Shapiro(Authors)
- 2017(Publication Date)
- Openstax(Publisher)
A demand curve shows the relationship between quantity demanded and price in a given market on a graph. The law of demand states that a higher price typically leads to a lower quantity demanded. A supply schedule is a table that shows the quantity supplied at different prices in the market. A supply curve shows the relationship between quantity supplied and price on a graph. The law of supply says that a higher price typically leads to a higher quantity supplied. The equilibrium price and equilibrium quantity occur where the Supply and Demand curves cross. The equilibrium occurs where the quantity demanded is equal to the quantity supplied. If the price is below the equilibrium level, then the quantity demanded will exceed the quantity supplied. Excess demand or a shortage will exist. If the price is above the equilibrium level, then the quantity supplied will exceed the quantity demanded. Excess supply or a surplus will exist. In either case, economic pressures will push the price toward the equilibrium level. 3.2 Shifts in Demand and Supply for Goods and Services Economists often use the ceteris paribus or “other things being equal” assumption: while examining the economic impact of one event, all other factors remain unchanged for analysis purposes. Factors that can shift the demand curve for goods and services, causing a different quantity to be demanded at any given price, include changes in tastes, population, income, prices of substitute or complement goods, and expectations about future conditions and prices. Factors that can shift the supply curve for goods and services, causing a different quantity to be supplied at any given price, include input prices, natural conditions, changes in technology, and government taxes, regulations, or subsidies. 76 Chapter 3 | Demand and Supply This OpenStax book is available for free at http://cnx.org/content/col12190/1.4
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