Step 4: Demanding Supply and Supplying Demand

Demand (goes to the sand)

The quantities that people are willing to buy at various prices

The Law of Demand

There is an inverse relationship between price and quantity demanded
-P↑Q↓-P↓Q↑

A demand schedule that graphically shows the inverse relationship between P and Q

A demand curve that visually shows the inverse relationship between P and Q

What causes a "change in quantity demanded"? (∆QD)

-∆ in price

What causes a "change in demand"? (∆D)

1. ∆ in buyer's taste (advertising)
2. ∆ in number of buyers (population)
3. ∆ in income
   a) normal - goods that buyers buy more of when income rises
   b) inferior - goods that buyers buy less of when income rises
4. ∆ in price of related goods
   a) substitute goods - goods that serve roughly the same purpose to buyers
   b) complimentary goods - goods that are often consumer together
5. ∆ in expectations (future)

Supply (goes to the sky)

The quantities that producers/sellers are willing and able to produce/sell at various prices

The Law of Demand

There is a direct relationship between price and quantity supplied
-P↑Q↑
-P↓Q↓

A supply schedule that graphically shows the direct relationship between P and Q

A supply curve that visually shows the direct relationship between P and Q

What causes a "change in quantity supplied"? (∆QS)

-∆ in price

What causes a "change in demand"? (∆D)

1. ∆ in weather
2. ∆ in technology
3. ∆ in cost of production
4. ∆ in taxes or subsidies (money that the government provides)
5. ∆ in number of sellers
6. ∆ in expectations (future)

*If Demand or Supply increases, then the curve will shift to the right. If Demand or Supply decreases, then the curve will shift to the left.