Economics – Introduction, Supply and
Demand
Introduction
Microeconomics - the branch of economics that studies the specific choices made by consumers and
producers.
Macroeconomics - looks at the world through a wider lens and is a description of the larger, complex
system in which consumers and firms operate.
Supply and Demand Model
Supply – the combined amount of a good that all producers in a market are willing to sell
Demand – the combined amount of a good that all consumers are willing to buy
Search costs – work to make a connection between consumers and producers
Commodities – goods that are traded in markets where consumers view different varieties of the
good as essentially interchangeable
Key assumptions underlying the supply and demand model:
1.
2.
3.
4.
We focus on supply and demand in a single market
All goods sold in the market are identical
All goods sold in the market sell for the same price, and everyone has the same information
These are many producers and consumers in the market
Demand
Factors that influence demand:
1.
2.
3.
4.
5.
Price
The number of consumers
Consumers income or wealth
Consumer tastes
Price of other goods
Demand choke price – the price at which no consumer is willing to buy a good, quantity demanded is
equal zero
Inverse demand curve – a demand curve written in the form of price as a function of quantity
demanded
CHANGES IN QUANTITY DEMANDED
Movement along a given demand curve (here from A to B for instance)
CHANGES IN DEMAND
Consumers want less --> left shift
Consumers want more --> right shift
Supply
Factor that influence supply:
1.
2.
3.
4.
Price
Suppliers’ cost of production
The number of sellers
Sellers’ outside options
Supply choke price – the price at which no firm is willing to produce a good and quantity supplied is
zero
Inverse supply curve – A supply curve written in the form of price as a function of quantity supplied
Producers want to produce more – right shift
Producers want to produce less – left shift
Equilibrium