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Demand & Supply

The Law of Demand


An inverse relation exists between price and quantity demanded.
People tend to substitute for goods whose price has gone up.
A curve that shows the various amounts that the consumers are willing and
able to purchase at each of the series of possible prices.



Determinants of Demand
Factors that cause shifts in the demand curve:
Society's income.
Tastes and preferences
Prices of related goods and services
Consumers expectations about future prices and incomes
Number of potential consumers
Changes in the Prices of Substitutes and Complements
Changes in government fiscal policy (spending and taxation) and monetary policy
(interest rate etc)




A Sample Demand Curve

The demand curve slopes downward and to the right.
As the price goes up, the quantity demanded goes down.



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Quantity demanded (per unit of time)
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The Law of Supply
There is a direct relationship between price and quantity supplied.
The supply curve slopes upward to the right.
The slope tells us that the quantity supplied varies directly in the same
direction with the price.


Determinants of Supply
Changes in Technology of business firms

Changes in the Tastes/Preferences of consumers for goods

Changes in consumers income spent on goods and services

The % of business firms in an industry

Changes in the Prices of related goods and services

The Costs of factor inputs of firms (labor, capital etc)

Seasonality (Christmas, Easter, Valentines day etc)

Commercial ads or Advertising

Natural Disasters

The rate of growth of the Population


A Sample Supply Curve
Quantity supplied (per unit of time)
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