Microeconomics: Demand, Supply, and Equilibrium

Demand

• Law of Demand: As the price of a good increases, the quantity demanded decreases, ceteris paribus (all other things being equal).
• Demand Curve: A graphical representation of the relationship between the price of a good and the quantity demanded.
• Factors Affecting Demand:
  • Price of the good
  • Income of consumers
  • Prices of related goods
  • Tastes and preferences
  • Population and demographics
• Types of Demand:
  • Direct Demand: Demand for a good for its own sake (e.g., food)
  • Derived Demand: Demand for a good because of its use in producing another good (e.g., labor in manufacturing)

Supply

• Law of Supply: As the price of a good increases, the quantity supplied also increases, ceteris paribus.
• Supply Curve: A graphical representation of the relationship between the price of a good and the quantity supplied.
• Factors Affecting Supply:
  • Price of the good
  • Production costs
  • Technology and productivity
  • Expectations of future prices
  • Government policies and regulations
• Types of Supply:
  • Individual Supply: The supply of a single firm or individual
  • Market Supply: The total supply of all firms in a market

Equilibrium

• Equilibrium Price: The price at which the quantity demanded equals the quantity supplied.
• Equilibrium Quantity: The quantity traded at the equilibrium price.
• Disequilibrium: A situation where the quantity demanded does not equal the quantity supplied.
  • Surplus: A situation where the quantity supplied exceeds the quantity demanded.
  • Shortage: A situation where the quantity demanded exceeds the quantity supplied.

Shifts in Demand and Supply

• Shift in Demand:
  • An increase in demand: a rightward shift of the demand curve
  • A decrease in demand: a leftward shift of the demand curve
• Shift in Supply:
  • An increase in supply: a rightward shift of the supply curve
  • A decrease in supply: a leftward shift of the supply curve