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demand and supply - Coggle Diagram
demand and supply
demand
law of demand : there is an inverse relationship between price and quantity demanded, it means if price goes down, then the demand will rise up
for example, if a bottle of water is just a dollar then the demand increase to 80, while if it costs 5$ then the demand decrease to 10
if you plot these points on a graph, then you will get a downward sloping demand curve, because if prices goes down then demand increases, while if prices goes up, then demand decreases
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there is 3 reasons the graph i mentioned is a downward sloping curve, which are the income effect, substitution effect, and the law of diminishing marginal utility
substitution effect : changes in price motivate consumers to buy relatively cheaper substitute goods
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the law of diminishing marginal utility: as you continue to consume a given product, you will eventually get less addition utility (satisfaction) from each unit you consume
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supply
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for example, if the price of a single bottle of water is only a dollar, then factories and other companies would not want to produce that much, but if the price increased to 5$ then companies would want to make more bottles so they can make more profit.
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a supply curve is upward sloping. so when the price increased the quantity supplied increase, the supply curve will shift to the right if there is an increase and goes to the left if there is a decrease
just like demand, the supply curve has 5 shifters which are : price of resources, number of producers, technology, taxes and subsidies, and expectations
price of resources: if the price of resources to produce a certain product increase, then the supply would decrease
number of producers : if the producers of a certain product suddenly increase then the supply of that product would increase
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taxes or subsidies : subsidy is when the government want producers to produce more, while tax is when the governments demands money from the producers to help with country development. Subsidies would increase supply, while taxes would decrease it instead
expectations : if a producer thinks they can make more profit on their products a few weeks from now, they'll hold back supply and supply later on.
conclusion
if you graph both curves, you can find a point where the two curves will meet up, in this case, you can find three situations
if you found the top part, then it should show that there is a large supply and a low demand, this shows a surplus where the quantity supplied is greater then the quantity demanded
if you found the bottom part, then you would see the opposite of the top part, in this case the supply is low and the demand is high, this is known as a shortage in which the quantity demanded is greater than the quantity supplied
if you found the point in which the demand and supply meets in the graph, it shows equilibrium, in which the quantity supplied is equal to the quantity demanded