Economics: Demand and Supply Concepts

Labor Supply

• Labor supply, in mainstream economic theories, is the total hours worked (adjusted for the intensity of effort) that workers want to work at a given real wage rate.

Market Demand

• Market demand is the amount of goods and services consumers are willing to purchase at each price.
• If customers cannot afford a good or service, there is no effective demand.

Price

• Price is what a buyer pays for a unit of a specific good or service.

Quantity Demand

• Quantity demand is the total number of units purchased at a specific price.

Law of Demand

• If all other factors remain constant, the higher the price of a good, the fewer people will demand that good.
• Consumers can buy more of a good when its price decreases and less when the price increases.
• Price and demand are inversely proportional.

Demand Curve

• The demand curve shows the relationship between price and the quantity of a good that consumers are willing to buy.
• The demand curve slopes downward because, as the price increases, the opportunity cost of buying the good also increases, leading consumers to buy less.
• The demand curve is downward sloping due to the law of diminishing marginal utility.

Factors Affecting Demand

• Income of buyers
• Number of potential buyers
• Preferences
• Complementary products

Market Supply

• Market supply is the amount of a product offered for sale at all possible prices in the market.

Law of Supply

• Suppliers tend to offer more of a good at a higher price and less at a lower price.
• The higher the price, the higher the quantity supplied and vice versa.
• Price and supply are directly proportional.

Supply Curve

• The supply curve shows the relationship between price and the quantity of a good that producers are willing to sell.
• The supply curve slopes upward because, as the price increases, the revenue increases, encouraging producers to supply more.

Market Equilibrium

• Equilibrium price (or market clearing price) is the price at which the quantity supplied equals the quantity demanded.
• At this price, producers can sell all the units they want to produce, and buyers can buy all the units they want.

Equilibrium Graph

• In equilibrium, the supply and demand curves intersect.
• The market price is sufficient to induce suppliers to bring the same quality of goods that consumers are willing to purchase.
• Equilibrium in the market represents an agreement on the price and quantity of goods traded.

Disequilibrium and Shifts

• Disequilibrium occurs in a free market economy when supply and demand are not equal.
• This imbalance results in price disequilibrium, surpluses, and shortages.
• Shifts in supply and demand curves can lead to disequilibrium.

This quiz covers essential concepts in economics related to labor supply, market demand, pricing, and the law of demand. It explores the relationships between these elements and how they influence consumer behavior. Test your understanding of the demand curve and other key principles in economics.