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Demand and Supply Principles Explained

This document discusses key concepts in demand and supply. It defines demand as the quantity of a good consumers will purchase at different prices. Supply is defined as the quantity producers are willing to provide at different prices. The market mechanism determines the market equilibrium price and quantity where demand and supply are equal. Factors like tastes, income, prices of substitutes and complements affect demand, while production costs, technology and prices of other goods impact supply.

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Moises John Caguioa
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33 views2 pages

Demand and Supply Principles Explained

This document discusses key concepts in demand and supply. It defines demand as the quantity of a good consumers will purchase at different prices. Supply is defined as the quantity producers are willing to provide at different prices. The market mechanism determines the market equilibrium price and quantity where demand and supply are equal. Factors like tastes, income, prices of substitutes and complements affect demand, while production costs, technology and prices of other goods impact supply.

Uploaded by

Moises John Caguioa
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

DEMAND AND SUPPLY (Module 4)

Study online at [Link]

1. MARKET Place where goods and services are brought and sold.

2. MARKET MECH- The market for a product works on certain market prin-
ANISM ciples i.e the laws that govern the working of the market
system, also called market mechanism.

3. DEMAND The law of demands states that as price increases (de-


creases) consumers will purchase less (more) of the spe-
cific commodity, ceteris paribus.

4. MARGINAL UTIL- The change in utility derived from the consumption of one
ITY more unit of a commodity.

5. DIMINISHING The idea that utility with the amount added to total utility
MARGINAL will decline when additional units are consume past some
UTILITY point has also the status of principle.

6. Income Effect Is the effect that as a person's income increases (or the
price of item goes down {which effectively increases com-
mand over goods} more of everything will be demanded.

The income effect suggest that as income goes down


(price increases) then less of the commodity will be pur-
chased.

7. SUBSTITUTION Is the effect that as the price of a commodity increases,


EFFECT consumers will buy less of it and more of other commodi-
ties.

In other words, consumer will attempt to substitute other


goods for the commodity that became more expensive.

8. QUALITY DE- Changes in the price of a commodity causes movements


MANDED along the demans curve.

9. CHANGES IN DE- Movements of the demand curve itself, either to the left or
MAND right.

10. The price of the Product. - usually, when a goods price


falls, more will be bought
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DEMAND AND SUPPLY (Module 4)
Study online at [Link]
FACTORS AF-
FECTING DE- Price of other Goods - demand for one product can often
MAND depend on the price of another

Tastes and Fashion - people's demands change over time


as fashions change.

Advertising - consumers can be informed about new or


improved products.

11. CHANGE IN THE As with the curve a change in the price


QUANTITY SUP-
PLIED

12. FACTORS AF- The price of the Product - generally the higher the price
FECTING SUP- that a firm can get for its products, the more it will offer for
PLY sale.

Cost of Production - id a firm's costs fall, it can supply more


of its products.

Prices of other goods - the price of alternative products


affects the quantity supplied of others.

Technology - advances in production techniques can fuel


greater supply of some products

13. MARKET EQUI- Putting Demand and Supply Together - The market price
LIBRIUM can be seen at the point where the demand and supply
lines across.

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