Demand, Supply, and Market Equilibrium are fundamental concepts in economics that

explain how goods and services are allocated in a market economy.

1; Demand:

Definition: Demand refers to the quantity of a good or service that consumers are willing
and able to purchase at various prices over a specific period.

2; A demand schedule

is a table that shows the quantity of a good or service that consumers are willing and able
to purchase at various prices, within a given time period,

3; Law of Demand

There is an inverse relationship between the price of a good and the quantity demanded,
i.e., as the price of a good increases, the quantity demanded decreases, and vice versa, all
else being equal.

1. Diminishing Marginal Utility: This principle states that as a person consumes more
units of a good, the additional satisfaction (or utility) from each additional unit
decreases. For example, the first slice of pizza might give a person great
satisfaction, but by the fifth slice, the satisfaction from consuming another slice is
less.
2. Income Effect: This refers to the change in consumption patterns due to a change
in a consumer’s purchasing power (real income). When the price of a good
decreases, it feels like the consumer has more income, which may lead them to buy
more of that good or other goods. Conversely, if prices rise, consumers may feel
poorer and reduce their consumption.
3. Substitution Effect: This occurs when a change in the price of a good causes
consumers to substitute that good with another. If the price of a good increases,
consumers may buy less of it and instead buy a cheaper alternative. Conversely, if
the price decreases, consumers may switch away from other goods toward the now
cheaper option.

Demand Curve: It is a downward-sloping curve showing the relationship between price

and quantity demanded.

The determinants of demand are factors that influence the quantity of a good or service
that consumers are willing and able to purchase at different price levels. These factors
cause the demand curve to shift either to the right (increase in demand) or to the left
(decrease in demand). The key determinants of demand include:
1. Price of the Good or Service: The most fundamental determinant. Generally, when the
price of a good decreases, demand increases, and when the price increases, demand
decreases (law of demand).

2. Income of Consumers:

= Normal Goods: As consumer incomes rise, demand for these goods increases.

= Inferior Goods: For these goods, demand decreases as consumer incomes rise.

3. Prices of Related Goods:

Substitute Goods: If the price of a substitute rises, demand for the original good increases
(e.g., if tea becomes more expensive, demand for coffee may rise).

Complementary Goods: If the price of a complementary good rises, demand for the
original good decreases (e.g., if gasoline prices rise, demand for cars may decrease).

4. Consumer Preferences and Tastes: Changes in consumer preferences can

significantly affect demand. If a good becomes more popular or fashionable, demand
increases, and if it falls out of favor, demand decreases.

5. Expectations of Future Prices: If consumers expect prices to rise in the future, they
may increase current demand. Conversely, if they expect prices to fall, they may delay
purchases, reducing current demand.

6. Number of Buyers: The more buyers in the market, the higher the overall demand for a
product or service. Changes in population size, demographics, and market entry can affect
the number of buyers.

7. Government Policies and Regulations; Taxes, subsidies, and regulations can affect
demand. For example, subsidies for electric vehicles might increase their demand.

change in demand; A movement of an entire demand curve or schedule such that the
quantity demanded changes at every particular price; caused by a change in one or more
of the deter- minants of demand

change in quantity demanded; A change in the quantity demanded along a fixed demand
curve (or within a fixed demand schedule) as a result of a change in the price of the
product.
Supply: Supply refers to the quantity of a good or service that producers are willing and
able to offer for sale at various prices over a specific period.

Supply schedule; A table of numbers showing the amounts of a good or service producers
are willing and able to make available for sale at each of a series of possible prices during a
specified period of time.

law of supply; The principle that, other things equal, an increase in the price of a product
will increase the quantity of it supplied, and conversely for a price decrease.

supply curve A curve that illustrates the supply for a product by showing how each
possible price (on the vertical axis) is associated with a specific quantity supplied (on the
horizontal axis)

determinants of supply; Factors other than price that determine the quantities supplied
of a good or service. Also referred to as "supply shifters" because changes in the
determinants of supply will cause the supply curve to shift either right or left.

1. Resource price; refers to the cost of inputs or factors of production required to produce
goods and services. These resources can include raw materials, labor, capital, and land.
Changes in resource prices directly affect the cost of production for businesses,
influencing their supply decisions.

2. Technology: Advancements in technology can increase productivity, leading to an

increase in supply.

3. Taxes and Subsidies: Higher taxes on production can reduce supply, while subsidies
can increase supply.

4. Number of Sellers: If more producers enter the market, the overall supply increases,
and if some exit, supply decreases.

5. Expectations of Future Prices: If producers expect prices to rise in the future, they may
decrease current supply to sell more later, or increase supply if they expect future prices to
fall.

6. Natural Events: Natural disasters, weather changes, or other external events can
reduce the supply of goods, especially in agriculture.

change in supply A movement of an entire supply curve or schedule such that the quantity
supplied changes at every particular price; caused by a change in one or more of the
determinants of supply.
change in quantity supplied A change in the quantity supplied along a fixed supply curve
(or within a fixed supply schedule) as a result of a change in the product's price.

Equilibrium price The price in a competitive market at which the quantity demanded and
the quantity supplied are equal, there is neither a shortage nor a surplus, and there is no
tendency for price to rise or fall.

equilibrium quantity (1) The quantity at which the intentions of buyers and sellers in a
particular market match at a particular price such that the quantity demanded and the
quantity supplied are equal; (2) the profit- maximizing output of a firm.

surplus The amount by which the quantity supplied of a product exceeds the quantity
demanded at a specific (above-equilibrium) price.

shortage The amount by which the quantity demanded of a product exceeds the quantity
supplied at a particular (below-equilibrium