ECONOMICS REVIEWER: SUPPLY AND DEMAND
Definition
Supply – the quantity of goods or services that producers are willing
and able to sell at different prices.
Demand – the quantity of goods or services that consumers are
willing and able to buy at different prices.
Law of Demand
When the price increases, the quantity demanded decreases.
When the price decreases, the quantity demanded increases.
Example: If the price of rice goes up, people buy less rice.
Law of Supply
When the price increases, the quantity supplied increases.
When the price decreases, the quantity supplied decreases.
Example: If the price of mangoes rises, farmers produce more
mangoes.
Equilibrium
The point where supply equals demand is called equilibrium price.
At this price, the market is balanced—producers sell all they want,
and consumers buy all they want.
Factors Affecting Demand
1. Income of consumers – more income, higher demand.
2. Price of related goods – substitutes and complements affect
demand.
3. Preferences and tastes – trends can increase demand.
4. Expectations of future prices – if prices are expected to rise,
demand may increase.
Factors Affecting Supply
1. Production cost – higher cost, lower supply.
2. Technology – better technology, higher supply.
3. Number of sellers – more sellers, higher supply.
4. Natural conditions – disasters or good weather affect supply.
Importance of Supply and Demand
1. Helps determine prices in the market.
2. Guides producers and consumers in making economic decisions.
3. Maintains market balance and prevents shortages or surpluses.
Sample Questions
1. What happens to demand if the price of a product rises?
o Answer: Demand decreases
2. What happens to supply if the price of a product rises?
o Answer: Supply increases
3. What is equilibrium price?
o Answer: The price where supply equals demand
4. Name one factor that affects demand.
o Answer: Income, tastes, price of related goods, or expectations
5. Name one factor that affects supply.
o Answer: Production cost, technology, number of sellers, natural
conditions