Supply and Demand
The supply and demand relates to the amount of goods/services that are willing to be bought
or sold, and are represented through the supply and demand curves.
Supply Curve – shows the amount of goods/services that a business is willing to supply at
various prices
Demand Curve – shows the amount of goods/services that customers are willing to buy at
various prices
Equilibrium Price – where the supply and demand curves intersect, the ideal selling price since it
avoids surpluses and shortages
The supply and demand curves are constantly shifting. The supply curve is influenced by the cost of
inputs, available technology, profits of other goods, the number of sellers in a market, the expectations
associated with the good/service. The demand curve is influenced by buyer preferences, income, prices
of substitutes, consumer expectations, and the number of potential consumers. Whenever these
influences cause a shift in the curves it causes the equilibrium price to change. Shifts in the demand
curve cause the equilibrium price and equilibrium quantity to move in the same direction, while shifts in
the supply curve cause the equilibrium price and equilibrium quantity to move inversely.
When a price is used that is not the equilibrium price then a shortage or surplus occurs. A shortage is
when a business is willing to sell fewer products than are demanded. A surplus is when a business is
willing is sell more products that are being demanded. A shortage means that more products could be
sold and more revenue could be generated for the business, not maximizing revenue is a negative for a
business. A surplus means that products cannot be sold at the price listed and will make the products
sell for a reduced price in order to sell decreasing the profits for a business which is a negative.