Demand and supply

Topics: Supply and demand, Economic equilibrium, Demand curve Pages: 8 (1437 words) Published: May 25, 2014
1. Conceptions

1.1. Demand

The demand in economics is the amount of a product that consumers are willing and able to purchase at each specific price in a set of possible prices during some specified period of time (Jackson et al., 2004). In addition, it is a relationship between two economic variables which are the price of a particular good and the quantity of the good that consumers are willing to buy at that price (Taylor and Frost, 2002).

Demand also can be described by a table or a curve. For instance, the table 1 is the demand schedule of ice-cream which reveals the relationship between the price of ice-cream and the quantity demanded. This is an example of law of demand, which means that the higher the price, the lower the quantity demanded in the market, and the lower the price, the higher the quantity demanded in the market (Taylor and Frost, 2002). In other words, the price and the quantity demanded are negatively related.

Table 1 Example for demand schedule (Gans et al., 2011)

Figure 1.1 is a graph with the price of the good on the vertical axis and the quantity demanded of the good on the horizontal axis. The combinations of price and quantity demanded is called the demand curve. It also shows the negative relationship between price and quantity demand.

Figure 1.1 Example of demand curve (Gans et al., 2011)

The demand curve is drawn which is assuming all other things remain equal, except the price of the good . The change of any other factors will shift the demand curve (Taylor and Frost, 2002). The increase in the quantity demanded at any given price will shifts the demand to the right which is called an increase in demand. The decrease in the quantity demanded at every price will shift the demand curve to the left which is called a decrease in demand (Gans et al., 2011). This is illustrated in figure 1.2. Moreover, there are five significant factors that could shift the demand curve, which are including income of consumers, price of relate goods, tastes of consumers, number of consumers in the market and expectation (Jackson et al., 2004).

Figure 1.2 Example of shift of demand curve (Hall and Lieberman, 2012)

1.2. Supply

In economics, the supply means the various amounts of a product that producers are willing and able to produce and make available for sale in the market at each specific price in a set of possible prices during some specified time period (Jackson et al., 2004). Supply is a relationship between two variables which is the price of a particular good and the quantity of the good company are willing to sell at that price (Taylor and Frost, 2002).

Like demand, supply can be expressed by supply schedule (Table 2) and supply curve (Figure 1.3). They shows the law of supply which is that the higher the price the higher the quantity supplied, and the lower the price, the lower the quantity supplied (Taylor and Frost, 2002). This means the price and the quantity supplied are positively related in the law of supply.

Table 2 Example of supply schedule (Gans et al., 2011)

Figure 1.3 Example of supply curve (Gans et al., 2011)

Similar to demand curve, the supply curve also can be influenced by other factors (Taylor and Frost, 2002). The increase in quantity demand at any price, will shift the supply curve to the right which is called an increase in supply, and the decrease in quantity supplied at any price will shift the supply curve to the left which is called a decrease in supply (Gans et al., 2011). This is revealed in figure 1.4. In addition, five factors affects the supply curve, which contain resource price, technology, price of other goods, expectations and number of sellers (Jackson et al., 2004).

Figure 1.4 Example of shift of supply curve

1.3. Market Equilibrium

Figure 1.5 reveals the market supply curve and market demand curve together. The point at which the supply and demand curves intersect is called the market's equilibrium. In...
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