Demand The quantity of a good or service that consumers are willing and able to buy at a given price in a given time period The Law of Demand: ‘there is an inverse relationship between price and quantity demanded for all normal goods’ (↑p → ↓Qd; ↓p → ↑Qd) P Q D

Supply The quantity of a good or service that producers are willing and able to provide to the market at a given price in a given time period P Q S There is usually a positive relationship between price and quantity supplied (↑p → ↑ Qs; ↓p → ↓ Qs)

The Demand Curve A movement along the demand curve caused by a change in price P Q D Contraction Extension

The Supply Curve A movement along the supply curve caused by a change in price P Q S Contraction Extension

Equilibrium Market Price A state of equality between demand and supply in a market – at a state of rest – all parties are happy P Q S PePe QeQe D P1P1 P2P2 At P1, Qs > Qd  price will fall as suppliers try to dispose of the surplus stock At P2, Qd > Qs  price will rise as buyers are willing to pay a higher price to secure some stock. Movement comes to rest where D=S – called market equilibrium

Charting Demand & Supply SupplyDemand PriceQuantityPriceQuantity £3£3 4 £3£3 16 £6£6 8 £ £ £ £ £ Plot the above data on a graph 2.At what price do these two lines intersect 3.How much will be demanded at a price of £ What is the consumer expenditure at the market equilibrium. 5.What is the firm’s revenue at the market equilibrium.

Shifts in the Demand Curve Changes impacting a market, other than price, will cause the demand curve to shift outward or inward P Q D D1D1 P QQ1Q1 This outward / rightward shift shows an increase in Qd at any price

Shifts in the Demand Curve P Q D1D1 D P Q1Q1 Q This inward/ leftward shift shows a decrease in Qd at any price

What shifts the demand curve? Changing price of substitutes Changing price of complements Changing incomes Changes in tastes & preferences Changes in interest rates Advertising

Decide whether the following events would cause a movement along a demand curve (extension or contraction) or a shift in the demand curve (increase or decrease) for Ford Cars. A fall in the price of petrol A fall in the price of Saab cars A fall in the price of Ford cars A rise in real disposable incomes An advertising campaign for Ford cars An increase in the punctuality and comfort of rail travel

Shifts in the Supply Curve P Q S S1S1 P Q1Q1 Q Inward / leftward shifts in supply indicate a decrease in quantity supplied at every price. P Q S S1S1 P QQ1Q1 Outward / rightward shifts in supply indicate an increase in quantity supplied at every price. Changes impacting producers in the market, other than price, will shift the supply curve.

What shifts the supply curve? Changing costs of production Changing gov’t taxes & subsidies Changes in climate / environment Changing prices of substitute use for resources Number of producers in the market

Decide whether the following events would cause a movement along a supply curve (extension or contraction) or a shift in the supply curve (increase or decrease) for Ford Cars. The use of advanced technology in Ford car plants A fall in the cost of car components A strike by Ford car workers A rise in the productivity of ford car workers A rise in the indirect tax imposed on cars A rise in the price of Ford cars

Shifts in Demand or Supply P Q D D1D1 P QQ1Q1 S P1P1 A SHIFT in one curve will cause a MOVEMENT ALONG the other curve. A shift in one curve will NEVER cause a shift in the other curve. Two curve may shift simultaneously, but of their own accord. This INCREASE in demand has caused an EXTENSION of supply. Market price has increased; quantity has increased.

Shifts in Demand or Supply P Q S S1S1 P Q1Q1 Q D P1P1 A SHIFT in one curve will cause a MOVEMENT ALONG the other curve. A shift in one curve will NEVER cause a shift in the other curve. Two curves may shift simultaneously, but of their own accord. This DECREASE in supply has caused a CONTRACTION in demand. Market price has increased, quantity has decreased.