Demand and Supply
• In a market economy
prices are set by a kind of
interaction.
• The interaction is the effect
that two forces- demand
and supply- have on each
other.
• Consumers are the people
who buy the goods and
services.
• Producers are the people
who or businesses that
provide the services.
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In economics, the demand is the amount of a
good or service that people are willing and
able to buy at various prices during a given
period of time.
Amount – Demand measures how much of a
good or service consumers are willing to but
over a range of possible prices.
Willing to buy – consumers must be willing to
but a good or a service or there is no
demand.
Able to buy – Consumers must have the
ability to buy the good or service.
Price – The quantity that consumers are
willing and able to buy is associated with a
particular price, be it high or low.
Supply is the amount of a good or a service
that producers are willing and able to sell
at various prices during a given time
period.
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The quantity of a particular item that is
demanded or supplied at each price can be
shown in a schedule.
The information on a schedule can then be
drawn as a line on a graph.
The graph includes a demand curve and a
supply curve.
Note that each point on the demand curve
shows the amount demanded at a particular
price.
Likewise, each point on the supply curve shows
the quantity supplied at a particular price.
The demand and supply curves together show
a market.
A market is a place where buyers and sellers
of the same good or service come together.
To be efficient, markets must have many
competing buyers and sellers.
The competition or struggle among sellers to
attract buyers, keeps the products price at or
near a certain level.
• Markets are vital to the US economy.
• Markets also help prevent the
production of too many, or too few,
goods and services.
• Note the supply and demand curves
meet at one point.
• It is called the equilibrium price.
• A surplus is the amount supplied by the
producers is greater than the amount
demanded by the consumers.
• A surplus tends to cause the prices to
fall.
• If the price were lower than the
equilibrium price, there would be a
shortage.
• A shortage would cause the price to
rise.
• One factor is the number of
consumers.
• Another factor is a change in
the consumer income.
• This causes demand to go up.
• If people earn less they do not
buy as much.
• The third factor that affects
demand is the change in
consumer preferences.
• For example if scientists
discover a certain organic
health compound consumers
would buy more of it.
• Several factors affect
supply.
• The two key factors are the
number of suppliers and
the costs of production.
• As the number of suppliers
increases, the available
quantity if a good or
services increases.
• As the cost of producing a
good or service goes up,
producers supply less.
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A market is any setting where goods and
services are exchanged for money.
It can even exist on the web.
In this type of economy, consumers and
producers use prices to help make economic
decisions.
Price also measures value.
All economic systems answer three basic
questions.
What to produce?
How to produce?
For whom to produce?
In a market economy, prices help to answer
these questions.
Price tells producers what to produce.
Why are no Large screen black and white
t.v.`s produced?
Products are made for consumers who can
buy and will buy them at a particular price.
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Every good has a price.
Consumers and producers use prices to
value goods and services.
If a T –shirt cost $10 and a pair of jeans
cost $25, then a pair of jeans is worth two
and a half T – shirts.
Prices send signals to consumers and
producers.
If consumers think a price is too high they
will not buy it.
On the reverse, when consumers can not find
a good or service at the low price they
want to pay, they must recognize that no
producer is willing to supply it to them at
that price.
Consumers will have to adapt, or change,
their expectations about what they have to
pay to get the good or service, or they will
have to go without it.
• In a command system the
government officials answer the
three basic economic questions.
• Government officials also set prices
on most goods and services.
• Price is not something that
consumers and producers work
through the interaction of supply
and demand.
• Prices are set by the government
based on the relative value of the
goods and services.
• Even on command economies
however, price may be the answer
to the third economic question: for
whom are the goods and services
are produced.