Demand and Supply Concepts

Demand and Supply

• Demand: The amount of a good or service that consumers are willing and able to buy at various prices. It's influenced by consumer preferences, income, and prices of related goods.
• Supply: The amount of a good or service that producers are willing and able to sell at various prices. It's influenced by production costs, technology, and prices
• Ceteris Paribus: Holding all other factors constant, which is a key assumption in analyzing demand and supply relationships. This means we examine how price changes affect demand and supply, while other important factors aren't changing.
• Quantity Demanded: The amount of a good that consumers are willing and able to buy at a specific price.
• Quantity Supplied: The amount of a good that producers are willing and able to sell at a specific price.
• Demand Curve: Graphically shows the relationship between the price of a good and the quantity demanded. It slopes downward, illustrating the inverse relationship between price and quantity demanded.
• Supply Curve: Graphically shows the relationship between the price of a good and the quantity supplied. It slopes upward, illustrating the direct relationship between price and quantity supplied.

Other Economic Concepts

• Inferior Goods: Goods whose demand decreases as consumer income increases. Example: cheaper cuts of meat might be bought less if income allows for purchase of higher quality cuts.
• Normal Goods: Goods whose demand increases as consumer income increases.
• Price Floor: The lowest legal price that can be charged for a good. It's typically set above the equilibrium price to protect producers.
• Complementary Goods: Goods that are used together; they are consumed simultaneously and typically have an inverse relationship (when one rises, the other decreases relative to the initial demand).
• Substitution Effect: The tendency of consumers to switch to substitute products when the initial product's price increases.
• Perfect Competition: A market structure characterized by many buyers and sellers, and no single buyer or seller has significant market power. Prices are largely determined by market forces.
• Monopsony: A market structure where there is only one buyer for a good or service. This buyer has significant market power and can influence the price they pay.
• DTI (Department of Trade and Industry): A government agency responsible, at least in part, for consumer protection and ensuring fair business practices.