Understanding Supply and Demand

Supply and Demand

• Demand is the quantity of a good or service that consumers are willing to buy at a specific price.
• The Law of Demand states that as prices decrease, consumers buy more, and as prices increase, consumers buy less.
• Consumer awareness/interest, ample supply, competitive pricing, and accessibility create demand.
• Consumer income, tastes, future expectations, and population changes can affect demand.
• Supply refers to the quantity of a good or service businesses are willing to provide at different price levels.
• The Law of Supply states that as price increases, supply increases because businesses produce more.
• Supply is determined by the cost of production, the price consumers are willing to pay, and the availability of resources.
• The number of producers, price changes, technology, future expectations, and production costs can change supply.

Market Equilibrium

• Market equilibrium occurs when buyers and sellers agree on a price, balancing the quantity demanded and supplied; this means no extra products or shortages.
• The point where demand equals supply ensures an ideal price that balances buyers and sellers.
• A surplus occurs when supply exceeds demand, resulting in too much product available.
• A shortage occurs when demand exceeds supply, implying there is not enough product available.

Scarcity, Opportunity Cost & Behavioral Economics

• Scarcity is the concept that limited resources must be allocated to meet unlimited wants.
• Opportunity cost represents the benefit given up when choosing one option over another.
• Limited resources force people to prioritize needs versus wants when making decisions under scarcity.
• Behavioral economics studies how people actually make financial decisions, contrasting with theoretical models.
• Artificial scarcity is when businesses create scarcity to increase perceived value.
• Loss aversion, or FOMO (fear of missing out), describes how people fear losing out more than they value gaining something.
• Social proof is the concept that when people see a product in high demand, they desire it more.

Market Forces & Competition

• Market forces are factors that influence price and availability.
• Supply and demand, competition, consumer preferences, economic conditions, government policies, technology, and global factors are market forces.
• Current examples of market forces in action include U.S. trade policies affecting Canada's exports, inflation trends creating economic uncertainty, Canada strengthening global alliances, currency fluctuations reacting to economic news, and Canada's housing crisis.

Market Structures in Canada

• Perfect competition involves many small businesses selling identical products with no price control, like farming (wheat, corn).
• Monopolistic competition features many businesses selling similar but unique products with some price control based on branding and quality, such as coffee chains like Tim Hortons versus Starbucks.
• Oligopoly is when a few large firms dominate the market with significant price control, as seen in airlines and telecom companies like Bell, Rogers, and Telus.
• Monopoly is when one company controls the market with complete price control, usually regulated by the government, such as local utilities like Burlington Hydro.

Why Competition Matters

• Competition benefits consumers through lower prices, better quality, and more choices.
• It encourages business growth by driving innovation and improving efficiency.
• Competition boosts the economy by creating jobs and strengthening global competitiveness.
• It prevents monopolies, ensuring fair pricing and avoiding exploitation.
• Monopolies are detrimental because they lead to companies raising prices and reducing quality due to a lack of competition.
• Less innovation results from monopolies because there is no incentive to improve.