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WEEK 3: Demand and Supply - Coggle Diagram
WEEK 3: Demand and Supply
Law of Demand
Holding all else constant, when the
price
of a product
falls
, the
quantity demand
of the product will
rise
(& vice versa).
Quantity demand
refers to the specific amount of a good that is desired at each given price.
Demand
refers to the relationship between price and quantity demand
Shift in demand
Movement along a demand curve is
cased by a change in the
price
of the good
Caused by changes in
non-price factors
e.g. change in income, in tastes, in the price of related goods, number of buyers
Influencing factors
Income
Normal Goods
(Goods we buy
more
when we get more income)
Inferior Goods
(Goods we buy
less
when we get more income)
Price of Related Goods
Complements
(Goods and services used
together
)
Substitutes
(Goods and services that can be used in
place
of each other)
Law of Supply
The direct relationship between the
price
and the
amount
producers are willing to sell.
Price and quantity move in the same direction (direct relation)
Shift in Supply
Movement along a demand curve is
cased by a change in the
price
of the good
Caused by changes in
non-price factors
e.g. changes in input costs → if input cost decrease, supply increase (vice versa)
e.g. technological development can increase supply
e.g. Taxes (negative) or subsidies (positive)
Market Equilibrium
Where quantity demanded = quantity supplied
Qd=Qs
Shortage
Qd > Qs
Occurs at any price
below
equilibrium
Price will
rise
over time toward equilibrium
Surplus
Qs > Qd
Occurs at any price
above
equilibrium
Price will
fall
over time toward equilibrium
Analysing Changes in
Market Equilibrium
Decide whether event shifts
demand, supply or both
Decide in which direction:
left or right
Use supply-demand diagram to work out the impact on equilibrium
price & quantity