Supply and Demand



Market – a place where buyers and sellers meet and trade goods and services



Quantity of a commodity that consumers are willing and able to purchase at a given period of time and at a given price.


Law of Demand

As a price of a good or service rises, the quantity demanded will fall.


Increase in Demand

·      Income effect – when price of product falls, people will have an increase in their real income. Reflects the amount that their incomes will buy. Hence they’re more likely to buy more of the product

·      Substitution effect – when price of product falls, then the product will be relatively more attractive to people than other products. People will then choose to buy this product more rather than it’s more expensive substitute.


A.   Substitutes

a.    If the substitute’s price increase, demand will increase. Increase in demand for the other product.

B.   Complements

a.    If the complement’s price increase, demand will decrease

C.   Real Income

a.    When income rises…

                                              i.     Demand for normal goods would increase

                                             ii.     Demand for inferior goods would decrease

D.   Population/Demographic

a.    Composition of the population changes, more consumers in a certain age group

E.    Taste/Preference

F.    Changes in income distribution

a.    The poor are


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