Supply and Demand

Economic definitions for DEMAND Demand: the total amount consumers are willing and able to buy at all prices.

Demand curve: the graphical representation of what consumers are willing and able to buy.

Law of Demand: As price increases/decreases, quantity demanded decreases/increases. PQPQ

Factors that cause demand to change or shift Tastes and fads Income Number of buyers Future price expectations Price and availability of:  Substitutes  compliments

IRDL “IRDL” will help you! INCREASE = RIGHT DECREASE = LEFT

Inelastic Demand: Price still moves up and down but Demand stays the same

Economic definition for SUPPLY Supply: the total amount of a good or service producers are able to make at all prices.

Supply curve: the graphical representation of a good or service producers are able to make at all prices.

Law of Supply: as price increases/decreases, quantity supplied increases/decreases PQPQ

Factors that cause a change in supply: Price of land, labor or capital(Factors of Production) Technology Number of other sellers Price of other goods I could produce Tax policy

Equilibrium Point: the point at which the quantity & the price are equal

Economic Equilibrium Equilibrium is the market clearing price and involves the most efficient choice  Producers and consumers make the most of their limited resources at the least cost  Therefore, producers and consumers act in their own economic self-interest when moving towards equilibrium At this point the number demanded equals the number supplied

Shortage and Surplus Shortage occurs when a good or service is priced below the market clearing price  Supply < Demand Surplus occurs when a good or service is priced above the market clearing price  Supply > Demand

Shortage and Surplus Both surplus and shortage are inefficient  Both involve missed profit