Post date: Sep 05, 2012 12:45:33 PM
Chapter 4: Demand
Chapter 5: Supply
How do suppliers decide what goods and services to offer?
Demand is the willingness and ability of a person to buy a product.
Demand can be affected by changes in income, changes in desire for a product, expectations about the economy, and changes in the prices of related products.
For example, if a substitute product is offered at a lower price, people will demand less of the initial product;
Supply is the willingness and ability of a supplier to produce a product
Supply can be affected by the number of firms in the industry, the cost of production, productivity, government policy, and natural disasters.
Equilibrium price is the price where the the goods and services supplied by the producer equals the goods and services demanded ...
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Define the terms below Demand, Equilibrium Price, Markets, Price, Supply
Review Substitute-in-Consumption
An economic principle that describes a consumer’s desire and willingness to pay a price for a specific good or service. Holding all other factors constant, the price of a good or service increases as its demand increases and vice versa.
Think of demand as your willingness to go out and buy a certain product. For example, market demand is the total of what everybody in the market wants.
Businesses often spend a considerable amount of money in order to determine the amount of demand that the public has for its products and services. Incorrect estimations will either result in money left on the table if it’s underestimated or losses if it’s overestimated.
Generally, if there is a low supply and a high demand, the price will be high. In contrast, the greater the supply and the lower the demand, the lower the price will be.
A fundamental economic concept that describes the total amount of a specific good or service that is available to consumers. Supply can relate to the amount available at a specific price or the amount available across a range of prices if displayed on a graph. This relates closely to the demand for a good or service at a specific price; all else being equal, the supply provided by producers will rise if the price rises because all firms look to maximize profits.
Why did the price of gas suddenly go up last week? What prompted the local shoe store to have a sale? Why are scalpers able to charge prices so much higher than those printed on the concert tickets? Supply and demand are at work in our everyday lives, causing changes in prices and quantities sold, and affecting our decisions about what to buy.
How can changes in supply and demand affect the prices of the products we buy? Demand is the willingness and ability of a person to buy a product. Demand can be affected by changes in income, changes in desire for a product, expectations about the economy, and changes in the prices of related products. For example, if a substitute product is offered at a lower price, people will demand less of the initial product; if a complement necessary to use the product goes up in price, people will again demand less of the initial product. Supply is the willingness and ability of a supplier to produce a product. Supply can be affected by the number of firms in the industry, the cost of production, productivity, government policy, and natural disasters.
Equilibrium is the point at which the supply and demand curves cross; at this point, the quantity demanded and the quantity supplied are equal. The price indicated at that point is the price we see in the market, and the quantity illustrates the amount produced.
However, in the real world, supply and demand curves are constantly on the move. People are hired and fired; they receive raises or find their work hours reduced. They tend to reduce their spending if they fear a recession, and they often change their desires for products -- the whole purpose of advertising! Companies face competition and changes in their costs of production, and they must try to improve worker productivity. They must contend with changes in government tax and regulatory policy, and they face the threat of fire and other disasters.
As events unfold, we can predict what will happen to product prices and output, based on changes in supply and demand. If demand increases (shifts to the right), the equilibrium point changes, as prices rise and the quantity produced rises.
However, if supply increases (shifts to the right), we will find that the price decreases, while quantity produced increases . Decreases in demand and supply will produce the opposite effects.
Now let’s translate this theory to real life.
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