Supply, Demand and Market Equilibrium
- Created by: abby_edmonstone
- Created on: 04-05-20 12:55
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- The Market System
- Supply
- There are multiple factors affecting supply
- Productivity
- More can be produced using the same amount of inputs, therefore more can be supplied.
- Indirect Taxes
- Imposed by the government on the producers but can be passed onto consumers.
- Sometimes businesses are worried that they'll lose customers if they increase the price by tax so they take tax as a loss.
- Imposed by the government on the producers but can be passed onto consumers.
- Number of Suppliers
- If there's a large number of suppliers in an industry, the supply for an individual business may be low, and vice versa.
- Technology
- Generally, more can be made in a shorter amount of time.
- However, normally the machinery is expensive and, if it breaks, costs money to fix.
- Subsidies
- The payment of money by the government to a producer in order to encourage them to supply/produce a certain good or service.
- Subsidies reduce the cost of production to the producer. They are targeted at low-profit industries.
- Weather
- Poor weather can affect the harvest or crops and so diminish the amount that can be supplied.
- Good weather can produce a bumper crop.
- Weather is an external factor as it cannot be controlled
- Cost of Production
- If costs increase this may affect the amount that can be produced and supplied.
- Productivity
- Shifts and Movements in a supply curve
- Shifts:
- When the price of the commodity stays the same but there is a change in quantity supply due to the PINTSWC factors
- It shifts to the right if supply increases, and shifts to the left if supply decreases
- Movements:
- When the commodity experience change in both the quantity supplied and price, causing the curve to move to a specific direction
- It moves up or down
- Shifts:
- There are multiple factors affecting supply
- Demand
- There are multiple factors affecting
- Population
- If the population increases, the demand is likely to increase
- Advertising
- A product which is heavily advertised may experience an increase in demand
- Substitutes
- A good that can be replaced by another good.
- Interest Rates
- The reward or cost of saving or borrowing money
- If interest rates are high, it will attract savers and repel borrowers, and vice versa
- Fashion Trends
- If a product is considered trendy, the demand will increase
- Income
- If salaries increase, people will buy more goods and services
- Complements
- Something you need in order to work another good, if price of 1 decreases, so will the other
- Population
- Shifts and Movements in a demand curve
- Shifts:
- When the price of the commodity stays the same but there is a change in quantity demanded due to the PASIFIC factors
- It shifts to the right if demand increases, and shifts to the left if demand decreases
- Movements:
- When the commodity experience change in both the quantity demanded and price, causing the curve to move to a specific direction
- It moves up or down
- Shifts:
- There are multiple factors affecting
- Market Equilibrium
- Price equilibrium is found where supply and demand are equal.
- This is the point where both sellers and buyers are happy with the price and quantity
- When is a market not at equilibrium?
- When there is excess supply-- the supply is greater than demand, therefore there's unsold goods in the market
- When there is excess demand-- the demand is greate than the supply, therefore there are shortages in the market
- A decrease in demand or an increase in supply reduces prices.
- An increase in demand or an fall in supply increases prices.
- Supply
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