Michael

In microeconomics, demand and supply is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers (at current price) will equal the quantity supplied by producers (at current price), resulting in an economic equilibrium for price and quantity, let us discuss this in some details.

Market demand

Demand for a good or service is defined as quantities that people are ready (willing and able) to buy at various prices within some given time period, other factors besides price are held constant.

Market demand is the sum of all the individual demands

Example: demand for pizza

Law of Demand is the inverse relationship between price and the quantity demanded of a good or service, in other words, as the price of a product increases, quantity demanded lowers; likewise, as the price of a product decreases, quantity demanded increases.

Changes in price result in changes in the quantity demanded, this is shown as movement along the demand curve.

Changes in non-price factors like income, future expectations and tastes and preferences result in changes in demand, this is shown as a shift in the demand curve.

Market Supply

Description: C:\Users\Michael\Desktop\supply.pngThe supply of a good or service is defined as quantities that people are ready to sell at various prices within some given time period, other factors besides price held constant.

Changes in price result in changes in the quantity supplied shown as movement along the supply curve

Changes in non-price determinants like costs and technology, future expectations and number of sellers result in changes in supply, shown as a shift in the supply curve.

 

Market equilibrium

Equilibrium price (P1) is the price that equates the quantity demanded with the quantity supplied

Equilibrium quantity (Q1) is the amount that people are willing to buy and sellers are willing to offer at the equilibrium price level

Shortage is a market situation in which the quantity demanded exceeds the quantity supplied, shortage occurs at a price below the equilibrium level

Surplus is a market situation in which the quantity supplied exceeds the quantity demanded, surplus occurs at a price above the equilibrium level

Leave a Reply

Your email address will not be published.

Captcha Time limit is exhausted. Please reload the CAPTCHA.