Mastering Supply and Demand

Supply in a Perfectly Competitive Market

• Supply is determined by various factors including production costs, technology, number of sellers, and expectations of future prices.
• The law of supply states that as the price of a good increases, the quantity supplied also increases, assuming all else is equal.

Theoretical Basis of Modern Economics

• The concept of scarcity forms the theoretical basis of modern economics, which highlights the limited nature of resources in relation to society’s unlimited wants.
• Decision-making under scarcity leads to trade-offs and opportunity costs.

Price Adjustment in a Competitive Market

• The unit price of a good varies until it reaches equilibrium, where the quantity demanded equals the quantity supplied.
• At equilibrium, there is no incentive for buyers or sellers to change their behavior, leading to market stability.

Aggregate Demand-Aggregate Supply Model in Macroeconomics

• This model depicts the determination of overall economic output (GDP) and price levels within an economy.
• It illustrates how aggregate demand interacts with aggregate supply to influence economic health and stability.

Impact of Rising Raw Material Costs on Supply

• An increase in the cost of raw materials leads to a decrease in supply, as producers may face higher production costs.
• As supply decreases, the supply curve shifts to the left, potentially increasing market prices for consumers.