demand , supply and marekt equlibrium Flashcards
what is demand in economics
Demand refers to the quantity of a good or service that consumers are willing and able to purchase at various prices, during a given period of time. The law of demand states that, all else being equal, as the price of a good or service increases, the quantity demanded decreases, and vice versa.
Example:
If the price of apples decreases, more consumers will be willing to buy apples, increasing the quantity demanded.
What factors can cause a shift in the demand curve?
ncome: If consumers’ income increases, they can afford more goods, causing demand to shift to the right (increase in demand). If income falls, demand decreases.
Example: If consumers experience a pay raise, they might demand more luxury items.
Consumer Preferences: Changes in consumer tastes and preferences can lead to an increase or decrease in demand.
Example: A fashion trend for a particular brand of clothing can increase demand.
Prices of Related Goods: The price of related goods (substitutes or complements) can also affect demand.
Substitutes: If the price of a substitute (e.g., tea for coffee) rises, demand for the original good (coffee) may increase.
Complements:
What is supply in economics?
upply refers to the quantity of a good or service that producers are willing and able to sell at various prices, during a given period of time. The law of supply states that, all else being equal, as the price of a good or service increases, the quantity supplied increases, and vice versa.
Example:
If the price of oil increases, oil producers are willing to supply more oil to the market.
What is market equilibrium?
Market equilibrium occurs when the quantity demanded by consumers equals the quantity supplied by producers, resulting in a stable market price. At this point, there is no shortage or surplus of goods. The price at which this occurs is called the equilibrium price, and the quantity bought and sold is the equilibrium quantity.
Example:
If the demand for pizza equals the supply of pizza at $10 per pizza, the market is in equilibrium at that price.
How do changes in demand affect market equilibrium?
Increase in Demand: When demand increases (shifts right), there is a higher quantity demanded at each price level, leading to a higher equilibrium price and quantity.
Example: If more consumers want electric cars due to environmental concerns, the price and quantity of electric cars will increase.
Decrease in Demand: When demand decreases (shifts left), there is a lower quantity demanded at each price level, leading to a lower equilibrium price and quantity.
Example: If consumers’ income decreases and they can no longer afford luxury cars, the demand for luxury cars will decrease, leading to lower prices and fewer cars sold.
