Demand & Supply

1. Laws

1.1. Law of demand: Price is inversely proportional to quantity demanded

1.2. Law of diminishing marginal utility: increase in satisfaction decreases with each additional unit consumed

2. Demand

2.1. is the willingness, desire and ability to buy a good

2.2. Opportunity cost is what could've been bought in place of that good itself

2.3. Demand schedule is a table representing points on a demand curve

2.4. Shifts are changes in demand, movements are changes in price resulting from quantity demanded

2.5. Demand factors

2.6. Changes in taste/preferences

2.7. Changes in levels and distribution of income

2.8. Availability of related goods

2.9. Changes in population and its structure

2.10. Expectation of future price changes

2.11. Complementary goods are in joint demand (Eab<0)

2.12. Substitute goods are in competitive demand (Eab>0)

3. Supply

3.1. Supply schedule is a table representative of the points of a SS curve

3.2. Is the desire to produce a certain good backed by willingness and ability to do so

3.3. A shift in the supply curve is a change in supply, but a movement along the curve is a change in quantity supplied resulting from a change in price of the good itself

3.4. Supply factors

3.5. Marginal cost of production

3.6. Changes in production of related goods

3.7. Natural disasters, unpredictable events

3.8. Speculation

4. Laws

4.1. Law of supply: Price is directly proportional to quantity supplied

4.2. Law of diminishing marginal returns: as output increases, marginal costs increases, as more workers means lees capital to work with, explaining the upward sloping SS curve

5. Equilibrium price is the intersection of demand and supply curves

5.1. where quantity supplied = quantity demanded

5.2. a point where demand and supply settles, and have a tendency to remain at that point, ceteris paribus

5.3. where there is allocative efficiency and both producers and consumers are happy, welfare is maximised

6. Any shifts away from equilibrium will result in DD and SS adjusting until a new equilibrium is reached

6.1. A shift in SS to the right will cause a surplus and put a downward pressure on price, ceteris paribus

6.2. A shift in DD to the right will cause a shortage and put upward pressure on prices, ceteris paribus

6.3. When there is shifting of both DD and SS in the same direction, the magnitude of the shift would determine the direction of pressure on prices

7. H2: Consumer and producer surplus

7.1. Consumer surplus: The difference between what consumers are willing and able to pay for a good and what they actually pay for it

7.2. Area below the demand curve to the price line

7.3. Producer surplus: the difference between the cost price of the good and the price they receive

7.4. Area below the price line and above the supply curve