Econ Notes: Supply and Demand

Supply and Demand

Remember kids: Demand goes to the sand, Supply goes to the sky!
Supply and demand is a very important fundamental concept that we must fully understand before we can even begin to understand how our economy works. For now, let's look at how demand works.

Demand
Demand is the quantities that people are able and willing to buy at various prices. The Law of Demand states that there is an inverse relationship between price and quantity. Price increase ---> Quantity decrease, and Price decrease ---> Quantity increase.

What causes a change in demand (ΔD)?

1. Δ in buyer's taste (may be due to advertising)
2. Δ in number of buyers (population)
3. Δ in income (normal goods, inferior goods)
4. Δ in the price of related goods (substitute goods, complimentary goods)
5. Δ in expectations

Supply
The Law of Supply states that there is a DIRECT relationship between price and quantity. When price increases, so does demand and vice versa.

What causes a change in supply (ΔS)?

1. Δ in technology
2. Δ in weather
3. Δ in taxes or subsidies
4. Δ in cost of production or resource prices
5. Δ in expectations