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Supply + Demand - Coggle Diagram
Supply + Demand
What supply is affected by
Costs of production: a rise in production costs decreases the profit made form selling the product, so there is a fall in supply.
Indirect taxes: if taxes like VAT increase, costs rise, so sellers are likely going to reduce supply.
Subsidies: subsisides encourage businesses to keep producing a product, so subsidies can increase supply.
New technology: New technology can increase efficiency which decreases costs.
Weather conditions: agriculture is heavily dependent on weather, a good season may increase supply, where as a bad season will decrease supply.
External shock: such as war, supply can decrease and materials could be used to focus on producing supplies for armed forces.
Supply and Demand Diagrams + how they are drawn
Definitions
Demand: the quantity of a product that consumers want and are able to buy at a given price, at a given time
Supply: the quantity of a product suppliers are willing and able to supply to a market at a given price, and a given time
Increases and decreases in price
An increase in price: demand would lower, causing a movement left in the demand curve, and supply would increase (so businesses can make more profit). This causes excess supply and therefore a
surplus
in the market.
A decrease in price: supply would decrease while demand would increase. This causes the supply curve to move left and the demand curve to move right. This causes excess demand and leads to market shortages.
What demand is influenced by
Price of a product is one of the main influences on demand causing demand to move along the curve. These factors cause the demand curve to entirely shift:
Complementary products: products which are used together. This can be printers and ink cartridges. If the price for printers increased, the demand for them would decrease, and so would ink carttridges as they are often bought together.
Consumer income: A rise in consumer income may lead to a rise in demand for higher priced products. A fall in consumer income will decrease the demand for these but then increase the demand for cheaper, budget goods.
Fashion, consumer taste, and consumer preferences: fashion or trends creates higher short term demand. For example fidget spinners
Advertising and branding: Aims to increase demand for a product, or encourage existing consumers to be loyal to the product, sustaining demand, even when faced with a good substitute.
Demographics: Changing demographics, such as an ageing population, has led to an increase in demand for goods aimed at older people.
Seasonal changes: In the UK for example, demand may rise for caps/sun hats seasonally, less in the winter and more in the summer.
The price of a substitute: for example, if the price for margerine increased by a huge amount, the demand for butter would increase as people aim for cheaper substitutes.
External shocks: such as the threat of war, diseases and extreme weather. Lockdown increased the demand for neccessesties such as toilet roll.
How supply + demand curves shift
Market changes cause equilibrium price to shift.
A rise in demand
Shifts the demand curve right.
If price stays the same, there is a shortage.
Prices need to rise to clear the market of excess demand.
Equilibrium quantity is at a higher price than before.
Fall in demand
Shifts the demand curve left.
At the same price, there is a surplus in the market.
Prices need to fall to clear the market of excess supply.
Equilibrium quantity is at a lower price than before.
Rise in supply
Shifts the supply curve to the right.
At the current price there is a surplus in the market.
Price needs to fall to clear the market of excess supply.
Equilibrium quantity is at a lower price than before.
Fall in supply
Shifts supply curve to the left.
At the current price, there is a shortage in the market: price needs to rise to clear the market of excess demand.