Supply and Demand

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Supply and Demand

• Produced by J.R.

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Table of Contents

• Overview of Supply and Demand
• Demand, its definitions and subspecies
• Supply, what it is and yada yada
• Subsidies

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So What Is S and D?

• A simple economic model based on the idea that
  people act out of their own self-interest
• First introduced by Alfred Marshall in Principles
  of Economics, published in 1890
• Not written of by the brilliant economists Smith,
  Mills or Malthius

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What is Demand?

• The amount of good that people (or consumers) are
  willing and/or able to buy (or consume)

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What is Utility?

• Utility How much satisfaction a consumer gets
  from consuming, using or abusing a good or
  service
• Utility declines the more there is of something

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What Influences Demand?

• The price of the good
• The consumers income
• If people want/like the goods
• Fashion
• Amount of substitutes (copies of good)
• Demand for goods used at the same time
• The Sheep effect, celebrities, friends etc are
  wearing/buying/using etc the good

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What Makes A Demand Curve Change?

• Price never shifts a demand curve
• A fall in quantity, as in Q1 Q2 can be called a
  contraction in demand.

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Where a Curve can Shift

• A demand curve can shift if there is a change in
  its customers.
• If there is a change in income, taste, fashion or
  etc then
• The Curve Shifts

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What is Supply?

• The amount of a good that vendors are willing
  and/or able to sell at any given price

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What Influences Supply?

• The price of the good
• The amount of competitive goods or look-alike
  products
• The cost of making the good
• The amount being produced
• Unforeseen events (earthquakes, strikes, another
  gold rush)

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Looking at Supply Curves

• Changes in price never shift the supply curve
• Increase in quantity from Q1-Q2 is called an
  expansion in supply

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Supply Curves Shift Only

• If there is
• A change in costs
• A change in the number of goods
• An unforeseen event (earthquake)

Increase in supply shifts curve to right
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Putting the Curves Together
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• The Area in-between the two curves around where
  the P and Q lines collide is the equilibrium.
• If the price is too high (well above equilibrium)
  then there is excess supply
• If the price is too low (well below equilibrium)
  then there is excess demand
• Excess supply drives prices down, excess demand
  drives prices up

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Subsidies

• A subsidy, free money given by the government to
  an industry, makes the industry want to produce
  more of a good. Thus pushing down the supply
  curve.
• Prices falls by less than subsidy, industry keeps
  money

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Conclusion

• Supply and Demand is a simple economic model that
  just makes sense when looking at human nature
• The goods that there are the least of are usually
  the most valuable
• Once there becomes a lot of something then the
  price usually moves down
• Dont sweat it, just think baseball cards

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If you want the exact link to learn more, or
review go to http//www.bized.ac.uk/stafsup/opti
ons/notes/econ207.htmHeading80