DEMAND, SUPPLY, AND EQUILIBRIUM

DEMAND

• quantity of a good or service that consumers are willing and able to buy at all possible prices during a certain time period.

INSECT

• I- income
• N-number of consumers
• S-substitute
• E-expectation
• C-compliments
• T-taste

LAW OF DEMAND

• The price of a good or service falls, the quantity demanded of that good or service rises. Vice versa.

DEMAND GRAPH

• Top to bottom
• When quantity increases price decreases.
• When quantity decreases price increases.

EXPLANATION

• The graph illustrates how when price increases or decreases then consumers want a product more or less depending on price.

SUPPLY

• quantity of a good or service that producers are willing and able to offer for sale at each possible price during a certain time period.

LAW OF SUPPLY

• An increase in price results in an increase in quantity supplied.
• There is a direct relationship between price and quantity.
• Quantity responds in the same direction as price changes.

SUPPLY GRAPH

• Bottom to top
• When price increases quantity increases.
• When price decrease quantity decreases.

EXPLANATION

• The producer behavior at the time of changes in the prices of goods and services.
• When the price of a good rises the supplier increases the supply in order to earn a profit because of higher prices.

PESTSTRIP

• P-change in productivity
• E-the expectation of future prices
• S-gov. Subsidies
• T-gov. Business tax
• S-the number of suppliers
• T-advance is technology
• R-gov. Regulations
• I-the cost of inputs
• P-a change in the price of related goods

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• Surplus- an excess amount of product over demand.
• Shortage- not enough product is being made.

PRICE CEILING

• Price floor- a government price control or limit on how high a price is charged for a product.

PRICE FLOOR

• Price floor- a government price control or limit on how low a price is charged for a product.

EQUILIBRIUM

• A situation in which supply and demand are matched and prices stable.

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• The red dotted line is equilibrium.

EQUILIBRIUM

• The line of equilibrium represents how prices and quantity are equal or stable.