Chapter 2

Demand

Supply

The quantity of product that consumers are willing and able to purchase at different prices, in a period of time.

Quantity of a product that suppliers are willing and able to sell at different prices in a period of time

Notional Demand

Effective demand

Demand that is not always backed up with ability to purchase

Demand that is supported by the ability to pay

Demand curve

Shows overall market for a product at different prices in a period of time

Factors influencing demand

Demand Schedule

Inverse relationship with price

Income

Normal goods

Price and substitutes

Positive relationship between income and aggregate demand

Inferior goods

Negative relationship, cheap product when income falls

Complement goods

joint demand

effect on one can effect both goods

Trends, fashion, taste and attitudes

Supply curve

Direct relationship with price

Price changes cause changes in quantity supplied

Factors influencing Supply

Costs

Size and nature of industry

Bigger and growing industry supply more

Supply could be restricted to maintain prices

Change in prices of other products

Competitors lowers, firm also lowers prices to maintain competition

Government policies

taxes, subsidies, quotas

External conditions. Shortage, harvest shortages, weather