Supply Demand And Equilibrium Flashcards
Equilibrium definition
The point where supply and demand meet.
Over time, the market for any given product will move towards equilibrium as buyers sellers both happy with price point
Law of demand
As the price falls, demand for the product increases
Law of supply
As the price of the product increases, the quantity of the product in the marketplace will also increase
Supply demand and equilibrium
P1 Q1 supply
Shifts in supply and demand curves
Shifts in curves from left to right demand or supply curves. Following imbalance is corrected by prices and demand changing
Supply curves
Decrease in supply, shift supply curve left.
Increase in supply, shift supply curve right
Change in quantity supplies causes movement along the existing supply curves
Primary factors that shift the supply curve
- price of raw materials
- the technology used. In the market
- improved effeciancy
Demand curve shift
Primary factors the shift the demand curve
- how much consumers have to spend
- trends and attitudes
- buyer expectations
- price of substitute goods
- population growth
Increase in demand, demand curve shifts left
Impact of price changes
Inelastic products
- products people want to buy, necessities, buy fixed amounts of
Elastic products
Tend to be luxurious. If price increase for elastic products, consumers stop buying as much
Other factors that effect elasticity
How many substitutes are there in the market
How much proportion of income product costs
How addictive the product is
Mechanism
1) Supply outstrip demand
2) organisations reduce price
3) this becomes unsustainable for some companies
4) companies withdraw from the market because fail entirely or refocus on products that make more profit
This rebalances the supply demand levels as fewer in market
