Econo
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Pioneer PaperboyEcono
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Pioneer PaperboyClass Notes: Introduction to Economics
Date: August 27, 2024
Subject: Economics
Topic: Supply and Demand
1. Definition of Supply and Demand
• Supply: The total amount of a good or service that producers are willing and able to sell at
various prices over a given time period.
• Demand: The total amount of a good or service that consumers are willing and able to purchase
at various prices over a given time period.
2. Law of Demand
• States that, all else being equal, as the price of a good or service decreases, the quantity
demanded increases, and vice versa.
• Demand Curve: A graphical representation showing the relationship between price and
quantity demanded, typically sloping downward.
3. Law of Supply
• States that, all else being equal, as the price of a good or service increases, the quantity
supplied also increases, and vice versa.
• Supply Curve: A graphical representation showing the relationship between price and quantity
supplied, typically sloping upward.
4. Market Equilibrium
• Equilibrium Price: The price at which the quantity of a good demanded by consumers equals the
quantity supplied by producers.
• Equilibrium Quantity: The quantity of a good bought and sold at the equilibrium price.
• Graphical Representation: The point where the supply and demand curves intersect.
5. Factors Affecting Demand
• Price of Related Goods:
o Substitutes: If the price of a substitute good rises, demand for the original good
increases.
o Complements: If the price of a complementary good rises, demand for the original good
decreases.
• Consumer Income:
o Normal goods: Demand increases as income rises.
o Inferior goods: Demand decreases as income rises.
• Consumer Preferences: Changes in tastes can shift demand.
• Expectations: Anticipated future prices can affect current demand.
6. Factors Affecting Supply
• Production Costs: If production costs increase, supply decreases.
• Technology: Advances in technology can increase supply by making production more efficient.
• Number of Sellers: An increase in the number of suppliers in the market typically increases
supply.
• Expectations: If producers expect prices to rise in the future, they may decrease current supply
to sell more later.
7. Conclusion
• Supply and demand are fundamental concepts in economics that describe how prices are
determined in a market. Understanding these principles is essential for analyzing market
behavior and making informed economic decisions.
Key Takeaways
• The law of demand indicates an inverse relationship between price and quantity demanded,
while the law of supply indicates a direct relationship between price and quantity supplied.
• Market equilibrium occurs where supply equals demand, determining the market price.
• Various factors can shift supply and demand curves, affecting prices and quantities in the
market.
Further Reading