Supply and demand revision

Simple notes on supply, demand and equilibrium

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Demand
The market is made up of buyers and sellers who meet to trade a
particular good/service. It is the buyers who create the demand for a
product: Demand refers to the quantity of a product that purchasers are
willing to buy at each and every price, per period of time.
Factors that shift demand
Complements: Demand for a good rises due to a fall in price of another good (+ vice versa)
Substitutes: Demand for a good rises due to a rise in price of another good (+ vice versa)
Tastes and Fashions: Newer technology and new trends ­ increase in demand for certain
goods
Income: If income increases, demand for normal goods increase and if income decreases
it falls, while demand for inferior goods increases.
Advertising: Campaigns usually lead to an increase in demand
Age distribution e.g. baby boom, aging population ­ larger quantity in goods demanded
Normal goods: A good that increases in demand when income increases e.g. fresh fruit
Inferior goods: A good that decreases in demand when income increases e.g. tinned fruit.
LEFT IS LESS ­ RIGHT IS MORE!!
Consumer surplus: the difference between the price paid and the price consumers are
willing and able to pay. This can be illustrated by:
If the price of a good falls, the
consumer surplus will increase, as
there will be a bigger difference
between the price payed and the

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If the price increases, the consumer surplus will decrease, as there will be a smaller
difference between the price payed and the price that consumers are willing to pay, hence
decreasing the welfare that consumers derive from buying a good
If demand falls, then the equlibrium price will go down and the quantity traded will go down
aswell, causing consumer surplus to decrease as less is being traded at a lower price. This
will decrease the welfare that consumers derive from buying a good.…read more

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If the price is too high (above equilibrium) then there will be a greater quantity supplied than
quantity demanded. This is known as a surplus.
If the price is too low (below equilibrium) then there will be a greater quantity demanded
than quantity supplied. This is known as a shortage.…read more

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