ECONOMICS REVIEWER: SUPPLY AND DEMAND (Extended Version)
Definitions
Supply: Quantity of goods/services producers are willing and able to
sell at different prices.
Demand: Quantity of goods/services consumers are willing and able to
buy at different prices.
Law of Demand
Price ↑ → Demand ↓
Price ↓ → Demand ↑
Example: Price of rice increases → people buy less rice.
Law of Supply
Price ↑ → Supply ↑
Price ↓ → Supply ↓
Example: Price of mangoes increases → farmers produce more
mangoes.
Market Equilibrium
Equilibrium Price: Where supply = demand → no shortage or surplus.
Excess Supply (Surplus): Supply > Demand → prices fall.
Excess Demand (Shortage): Demand > Supply → prices rise.
Factors Affecting Demand
1. Consumer income
2. Price of related goods (substitutes/complements)
3. Consumer preferences
4. Expectations of future prices
5. Population growth
Factors Affecting Supply
1. Production cost
2. Technology improvements
3. Number of producers
4. Natural conditions (weather, disasters)
5. Government policies (taxes, subsidies)
Importance of Supply and Demand
Determines market prices
Guides producers and consumers in decision-making
Maintains market balance
Helps predict shortages and surpluses
Real-Life Examples
Demand: Smartphones → higher prices may reduce buyers;
promotions increase buyers.
Supply: Rice → better irrigation increases supply; drought decreases
supply.
Equilibrium: When price of milk stabilizes where farmers supply the
amount consumers want.
Extra Sample Questions
1. Explain what happens during a shortage and a surplus.
2. Draw a supply and demand curve showing equilibrium.
3. How does consumer income affect demand?
4. What factors can increase supply?
5. Give an example of a product where demand decreases when price
rises.
6. Why is understanding supply and demand important for businesses?
ECONOMICS REVIEWER: SUPPLY AND DEMAND
Definitions
Supply – the quantity of goods/services producers are willing and
able to sell at various prices.
Demand – the quantity of goods/services consumers are willing and
able to buy at various prices.
Laws
Law of Demand: Price ↑ → Demand ↓ ; Price ↓ → Demand ↑
Law of Supply: Price ↑ → Supply ↑ ; Price ↓ → Supply ↓
Equilibrium
Equilibrium Price – where supply = demand; market is balanced.
Excess Supply (Surplus) – supply > demand → prices tend to fall.
Excess Demand (Shortage) – demand > supply → prices tend to
rise.
Factors Affecting Demand
1. Income level
2. Price of related goods (substitutes/complements)
3. Consumer preferences and trends
4. Expectations of future prices
Factors Affecting Supply
1. Production cost
2. Technology improvements
3. Number of producers
4. Natural conditions (weather, disasters)
Importance
Determines market prices
Guides producers and consumers in decision-making
Maintains market balance
Extra Sample Questions
1. Explain what happens during a shortage.
2. Draw a supply and demand curve showing equilibrium.
3. How does consumer income affect demand?
4. What factors can increase supply?
5. Give an example of a product where demand decreases when price
rises.
