Supply and demand Flashcards
What is demand?
The quantity of a product that consumers want and are able to buy at a given price, at a particular time.
What is supply?
Supply is the quantity of a product that suppliers are able and willing to supply to a market at a given price at a particular time.
What does a supply and demand diagram show?
A supply and demand diagram plots the quantity (Q) of a product in supply or demand against a range of different prices (P) of the product (on the x curve.) It is made up of two curves - one for demand and one for supply.
How does the demand curve slope what does this line show?
The demand curve (D) slopes downwards. It shows as the price of a product rises, the demand decreases.
What does the supply curve show? How does it slope?
The supply curve (S) shows the the relationship between price and quantity supplied. It usually slopes upwards. This means the higher the price charged for the product, the higher the quantity supplied.
Why do increases in price increase the Q supplied?
Every party wants to maximise profit; if prices are higher, profit is increased, so sellers want to sell more, which incentivises suppliers to supply more and increase production to increase profits.
- However, this does increase costs, so will only be done where the price rises more than the costs.
What is equilibrium price?
This is when the amount demanded matches the amount supplied.
-When the quantity that buyers demand is the same as the quantity sellers are willing to supply, an equilibrium price and quantity is achieved. (Also market clearing price.)
The equilibrium price (Pe) and equilibrium quantity is where the two curves meet.
Draw the graph for equilibrium price.
https://www.google.com/search?q=equilibrium+price+diagram&rlz=1C1GCEA_enGB1004GB1005&source=lnms&tbm=isch&sa=X&ved=2ahUKEwjBzI3T3o_-AhWUglwKHf6dChYQ_AUoAXoECAEQAw&biw=1366&bih=625&dpr=1&safe=active&ssui=on#imgrc=F1D3Httigg64IM (1st image)
When does a surplus occur? Draw the graph that represents this
When price increases. If the price of a product increases, this would cause a movement to the right along the supply curve (there is more supplied) whilst there would be a movement to the left of the demand curve (the demand falls).
- This means the quantity demanded would be less than the quantity supplied and there would be excess supply in the market.
-Graph is 2nd image
https://www.google.com/search?q=excess+supply+diagram&rlz=1C1GCEA_enGB1004GB1005&source=lnms&tbm=isch&sa=X&ved=2ahUKEwjV7tOK5o_-AhWtQkEAHS54A9sQ_AUoAXoECAEQAw&biw=1366&bih=625&dpr=1&safe=active&ssui=on#imgrc=uU9sYfapzvDsdM
When does a shortage in supply occur? Show the relevant graph to represent this.
A shortage occurs when the price decreases. If the price of a product falls, it would cause a left shift along the supply curve and a right shift along the demand curve.
- This would mean the demand would outstrip the supply, causing a deficit in the market.
Shown in image 2
https://www.google.com/search?q=excess+demand+diagram&tbm=isch&ved=2ahUKEwjv2uCL5o_-AhXGmicCHaRjBHcQ2-cCegQIABAA&oq=excess+demand+diagram&gs_lcp=CgNpbWcQAzIFCAAQgAQyBQgAEIAEMgYIABAHEB4yBggAEAUQHjIGCAAQCBAeMgcIABAYEIAEMgcIABAYEIAEOgcIABCKBRBDOggIABAIEAcQHjoICAAQBRAHEB5Q8QRY9hNg6xRoAHAAeACAAVeIAfgGkgECMTOYAQCgAQGqAQtnd3Mtd2l6LWltZ8ABAQ&sclient=img&ei=WN4rZO_OF8a1nsEPpMeRuAc&bih=625&biw=1366&rlz=1C1GCEA_enGB1004GB1005&safe=active&ssui=on#imgrc=IG5uNEd8uKSwgM
Other than price, what factors influence the amount of demand for a product; Substitutes
- Substitutes - The demand for a product or brand can be affected by affected by a price change of a substitute (something people would use instead.) If the cost of a substitute rises, it can cause demand for another product to rise as people will not pay more for a product where alternatives exist on the market.
Other than price, what factors influence the amount of demand for a product; Complementary products.
These are products which are used together ie printers and ink cartridges. So if the price of one of these things increased the demand would likely fall for both of them.
Consumer income.
Higher incomes increases demand for luxury items, lower incomes can cause increases in demand for inferior and necessity goods (cheaper.)
Fashion tastes and preferences.
Demand for a product relies on what consumers want. For example, warnings about sugar and cancer links could cause changes in diets - would see falls of demand in sugary products.
Advertising and branding.
Aims to increase demand for a product through attracting new consumers or encouraging current buyers to remain loyal, even with good alternatives.
