Supply and Demand

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  • Topic: Supply and demand, Economic equilibrium, Partial equilibrium
  • Pages : 2 (351 words )
  • Download(s) : 109
  • Published : April 18, 2013
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Demand is the quantity which people are willing to buy at a partivular price at a particular time.

The law of demand states that at a high price people will demand less and at a low price people will demand more. Demand is therefore a set of relationships between price and quantity.

Representing demand:
Demand can be represented by means of a demand table or demand curve(graph). The demand curve usually has a negative gradient which slopes downwards from left to right. The demand table shows an inverse relationship between price and quantity.

Changes in demand:
1.An increase in demand:
This means that people will demand more at the same price.
The damand curve shifts to the right.

2.A decrease in demand:
This means that people will demand less at the same price.
The demand vurve shifts to the left.

What causes a change in demand:
1.Consumer's needs change.
2.Income of consumers change.
3.Changes in the price or appearance of substitutes.
4.Changes in the price of complements.
5.Changes in the economic climate.
6.Increase in the population.
7.Charging of indirect taxes such as VAT, excise duties or customs duty.

Exceptional demand curves:
These are demand curves which do not have a negative gradient, I.e, people don't buy less as price increases.

1.Status goods(snob effect):
People are attracted to the good because it is expensive, it becomes more attractive and is a status symbol. E.g. Luxury cars and jewellery. People will buy more when the price is high.

2.Basic, essential goods:
People will have to buy the same quality of goods even if price increases. They do this by buying less of something else. This is caled the Griffin Paradox. (Constant gradient).

3.Expectation that price will increase:
If price increases and people expect it to increases even more, they will buy more at the increased price befor further price increases occur.

If supply and demand interact, a market equilibrium price will be created. If...
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