- The law of demand states that as price increases, quantity demanded decreases, as consumers will buy less of a good that becomes more expensive. This relationship is shown through a demand schedule and demand curve.
- The law of supply states that as price increases, quantity supplied also increases, as producers are willing to supply more of a good that becomes more profitable to produce. The five factors that can cause the supply curve to shift are changes in input prices, number of producers, technology, taxes/subsidies, and expectations about future prices/profits.
- Equilibrium occurs at the price where the quantity demanded is equal to the quantity supplied. This is where the demand and supply curves intersect
- The law of demand states that as price increases, quantity demanded decreases, as consumers will buy less of a good that becomes more expensive. This relationship is shown through a demand schedule and demand curve.
- The law of supply states that as price increases, quantity supplied also increases, as producers are willing to supply more of a good that becomes more profitable to produce. The five factors that can cause the supply curve to shift are changes in input prices, number of producers, technology, taxes/subsidies, and expectations about future prices/profits.
- Equilibrium occurs at the price where the quantity demanded is equal to the quantity supplied. This is where the demand and supply curves intersect
- The law of demand states that as price increases, quantity demanded decreases, as consumers will buy less of a good that becomes more expensive. This relationship is shown through a demand schedule and demand curve.
- The law of supply states that as price increases, quantity supplied also increases, as producers are willing to supply more of a good that becomes more profitable to produce. The five factors that can cause the supply curve to shift are changes in input prices, number of producers, technology, taxes/subsidies, and expectations about future prices/profits.
- Equilibrium occurs at the price where the quantity demanded is equal to the quantity supplied. This is where the demand and supply curves intersect
- The law of demand states that as price increases, quantity demanded decreases, as consumers will buy less of a good that becomes more expensive. This relationship is shown through a demand schedule and demand curve.
- The law of supply states that as price increases, quantity supplied also increases, as producers are willing to supply more of a good that becomes more profitable to produce. The five factors that can cause the supply curve to shift are changes in input prices, number of producers, technology, taxes/subsidies, and expectations about future prices/profits.
- Equilibrium occurs at the price where the quantity demanded is equal to the quantity supplied. This is where the demand and supply curves intersect
There is an inverse relationship between the price and quantity demanded.
Example: If the price of milk increases, then the quantity demanded by the consumers decreases.
Demand schedule
Price Quantity R5 10 R4 20 R3 30 R2 50 R1 80
Demand Curve (Shows the las of demand)
Demand 6
4 Price
0 10 20 30 40 50 60 70 80 Quantity
Demand
Why does the demand curve look like this?
• Substitution effect: Changes in price, motivates consumers to buy relatively cheaper substitute goods. Example: butter vs margarine • Income effects: Changes in price affect the purchasing power of consumers’ income. Example: Salary = R500, you purchase 4 X2L milk at R20 = R80. If milk price increases to R25 can only afford to buy 3 instead of the 4. Budget for milk is R80. • Law of diminishing marginal utility: As you continue to consume milk, you eventually get less additional utility (satisfaction) from each unit you consume.
Change in quantity demanded
Due to: • Change in price leads to movement along the demand curve
Change in demand Due to the 5 shifters of demand
1. Tastes/ Preferences: Example: If a study is released and it shows that kids who have milk in the morning perform better at school then most parents will prefer their kids to have milk in the morning. Thus, increases the demand for milk. 2. Number of consumers: Example: IF new customers move to town, more milk will be demanded. Thus, increases the demand for milk. 3. Price of related goods: Example 1 (substitutes): If the price of Almond milk increases, its demand decreases and the demand for cow milk increases. Example 2 (Complements): If the price of cereal decreases, then demand for milk increases. 4. Income: Normal goods are those goods for which the demand increases as consumer income increases. Inferior goods are those goods whose demand decreases as consumer income increases. 5. Change in expectations: Example: If you think the price of milk will increase next week, you will probably buy milk in bulk before next week.
Change in quantity demanded vs Change in demand
The law of supply:
There is a direct relationship between price and quantity supplied. Example: If price milk increases then, quantity producers make increases.
The 5 shifters of supply:
1. Price of resources (Inputs): Example: If there is a huge increase in the price of dairy cows then, supply of milk will decrease because milk producers need dairy cows in order to produce milk. 2. Number of producers: Example: If there is an increase of the number of diary farmers then, there will be an increase in the supply of milk. 3. Technology (Change that affects productivity): Example: New advance milking machines would lead to an increase in the supply of milk; thus, the supply curve would shift to the right. 4. Taxes and subsidiaries: Taxes- Takes away producers’ money, since they have less money to produce milk, the supply curve will shift to the left. Subsidiaries- When the government wants firms to produce more, so it gives firms more money to produce products. Thus, the supply curve will shift to the right. 5. Expectations: Example: If a producer thinks they can make more money on their products a few weeks from now (World cup), they will hold back supply now and supply more in a few weeks’ time (More profit).
Change in quantity supplied vs Change in supply
Equilibrium price: The equilibrium price is the market price where the quantity of goods supplied is equal to the quantity of goods demanded. This is the point at which the demand and supply curves in the market intersect.
