economics - demand and supply

How markets work

• Market for a good or service consists of producers willing and able to supply it and consumers willing and able to demand it.

Demand

• Demand is the want and willingness of a consumer to buy a product.
• An effective demand can only occur if the consumer has enough money to buy the product.
• The relationship between demand and price is inversed and negative.
• So demand curve slopes downwards
• As price increases, quantity demanded decreases and vice versa
• A contraction is when demand falls as price increases.
• An extension is when demand rises as price decreases.
• Extension and contraction are MOVEMENT ALONG THE CURVE and only affected by price
• Determinants of demand:
• Disposable income
• Price of substitutes (substitute is a good that can satisfy the same wants / have same function)
• Price of complements (complements are goods in joint demand)
• Taste and favour
• Population
• Advertising
• The determinants of demand cause a SHIFT between curves.

Supply

• Supply is the ability and willingness of the producers to make a good available.
• The relationship between supply and price is positive
• As price increases, quantity supplied increases: extension
• As price decreases, quantity supplied decreases: contraction
• Supply curve slopes upwards.
• Determinants of supply:
• Cost of production
• Technical improvements/failures
• Economic turnover/downturn
• Supply of resources
• Profitabillity
• Prices of complement/substitutes
• Business optimism
• Maximise sales/profits
• Subsidies/taxation

Market equilibrium

• A market is in equilibrium when the quantity demanded matches the quantity supplied. 
• Market demand = market supply
• Market price: the quantity…