Supply & Demand Notes (Alec Soard)

SUPPLY AND DEMAND

DEMAND

•The desire, ability and willingness to buy a product.

•All three must be present.


Demand curve

Individuals demand


Market Demand Curve

Individual + all others in market's demand.


LAW OF DEMAND

As price goes up - quantity goes down.

Quantity demanded of a good or service varies inversely with its price.


•Utility- usefulness or satisfaction a person derives from a product.

•Do you buy things that have no use or provide no satisfaction.


MARGINAL UTILITY

•The extra benefit or usefulness a person will get form acquiring one more unit of a product.

•DIMINISHING MARGINAL UTILITY UTILITY: States that the extra satisfaction we get from using additional quantities of a product will diminish as more are added. This explains the downward slope of the demand curve. Larry will not pay as much for three CDs as he will for one.


CHANGES IN QUANTITY DEMANDED

•is a response to a change in price.


CHANGE IN DEMAND

•Means people are now willing to buy different amount of something without a change in price.


DEFINITION OF SUPPLY

•The amount of a product that will be offered for sale at all possible prices.

•Suppliers will normally offer more of an item at high prices and less at lower prices.


CHANGES IN QUANTITY SUPPLIED

•Response to change in price.

•Increase in quantity supplied when prices increase and show a decrease in quantity supply when prices decrease.

•A change in supply curves when suppliers offer different amounts of products for sale at all possible prices.



PRICE

•Monetary value of a product established by supply and demand.

•Link between producers and consumers to determine the three questions of what to produce, how to produce and who is it for.

•Signal to make economic decisions.

•"If you're going to do something dumb, be smart about."


•Prices do not favor sellers or buyers.

•Prices are the result of competition and represent a compromise that both sides can live with.

•Prices are also flexible. capable of adjusting to unseen events and can accommodate change.

•Prices are free...

•Prices are familiar, they are easy to understand.

•Allocation without prices is rationing.

•Rationing is a system where the government decides everyone's fair share.

•Rationing isn't fair.


COMBINING SUPPLY AND DEMAND TO EQUILIBRIUM

•Situation in which the supply of goods and services is equal to the quantity demanded.

•Where the two curves intersect is your market equilibrium.