Supply and Demand Flashcards
What is Demand
The Quantity of goods and services that will be bought over a period of time at any given price (Demand goes down)
Factors effecting demand
- Prices
- Incomes
- Tastes fashions
- Social and demographic
- seasonal
- government action
- competitor actions (substitutes,
complements)
The demand curve goes down due to diminishing return (the utility of a product goes down with every additional purchase)
what is supply
the Quantity of a good or service. that firms are willing to supply at a given price over a period of time (supply goes up)
Factors effecting supply
- changes in technology
- production costs
- transport costs
- weather
- taxes
- subsidies
- prices of other goods
- specialisation
- production
Price equilibrium
The market price where the quantity of goods supplied is equal to the quantity of goods demanded
Excess demand
the quantity of a good or service demanded is more than the quantity supplied
Consumers may be frustrated by a shortage in supply and be willing to pay more for goods/services
producers will therefore increase prices to reach the price equilibrium (the invisible hand)
consequences of excess demand
Consumers may be frustrated by a shortage in supply and be willing to pay more for goods/services
producers will therefore increase prices to reach the price equilibrium (the invisible hand)
Excess supply
The quantity of goods supplied is more the the quantity demanded
consequences of excess supply
- excess supply leads to unsold stock
- hence suppliers will reduce the price
to get rid of unsold stock - the market will therefore return to
equilibrium
(invisible hand clears excess supply and demand)
what are the 3 functions of prices
- Rationing
- Signalling
- Incentives
Rationing
how much we can get with a certain budget
Signalling
The signal to someone the value of a good
Incentives
Encourages producers to make things in order to gain a profit
