Understanding Supply and Demand in Economics

Study Notes

Supply: The amount of a product or service that producers are willing and able to produce and sell at a given price level.
Demand: The amount of a product or service that consumers are willing and able to buy at a given price level.

Surplus: A situation where the quantity supplied is greater than the quantity demanded at a given price level.
Shortage: A situation where the quantity demanded is greater than the quantity supplied at a given price level.

Perfect Competition: Many buyers and sellers, free entry and exit, homogeneous products, and perfect information.
Monopoly: A single seller, barriers to entry, and price maker.
Monopolistic Competition: Many buyers and sellers, free entry and exit, differentiated products, and non-price competition.
Oligopoly: Few sellers, barriers to entry, and interdependent decision-making.

Equilibrium Price: The price at which the quantity supplied equals the quantity demanded.
Equilibrium Quantity: The quantity traded at the equilibrium price.

Price Elasticity of Demand: The responsiveness of the quantity demanded to a change in price.
Price Elasticity of Supply: The responsiveness of the quantity supplied to a change in price.
Elastic: A small change in price leads to a large change in quantity.
Inelastic: A large change in price leads to a small change in quantity.

Efficient Allocation: The allocation of resources that maximizes the overall well-being of society.
Market Failure: Situations where the market fails to allocate resources efficiently, such as externalities, public goods, and information asymmetry.

Demand Shift: A change in the demand curve, caused by factors such as changes in consumer preferences, income, or population.
Supply Shift: A change in the supply curve, caused by factors such as changes in production costs, technology, or expectations.

Substitutes: Products that can be used in place of each other, such as coffee and tea.
Complements: Products that are used together, such as computers and software.

Note: These notes provide a concise overview of the key concepts related to market forces of supply and demand.

Supply refers to the amount of a product or service that producers are willing and able to produce and sell at a given price level.
Demand refers to the amount of a product or service that consumers are willing and able to buy at a given price level.

A surplus occurs when the quantity supplied is greater than the quantity demanded at a given price level.
A shortage occurs when the quantity demanded is greater than the quantity supplied at a given price level.

Perfect competition is characterized by many buyers and sellers, free entry and exit, homogeneous products, and perfect information.
Monopoly is characterized by a single seller, barriers to entry, and price maker.
Monopolistic competition is characterized by many buyers and sellers, free entry and exit, differentiated products, and non-price competition.
Oligopoly is characterized by few sellers, barriers to entry, and interdependent decision-making.

Equilibrium price is the price at which the quantity supplied equals the quantity demanded.
Equilibrium quantity is the quantity traded at the equilibrium price.

Price elasticity of demand measures the responsiveness of the quantity demanded to a change in price.
Price elasticity of supply measures the responsiveness of the quantity supplied to a change in price.
Elastic demand or supply means a small change in price leads to a large change in quantity.
Inelastic demand or supply means a large change in price leads to a small change in quantity.

Efficient allocation occurs when resources are allocated in a way that maximizes the overall well-being of society.
Market failure occurs when the market fails to allocate resources efficiently, resulting in externalities, public goods, and information asymmetry.

Demand shift occurs when there is a change in the demand curve, caused by factors such as changes in consumer preferences, income, or population.
Supply shift occurs when there is a change in the supply curve, caused by factors such as changes in production costs, technology, or expectations.

Substitutes are products that can be used in place of each other, such as coffee and tea.
Complements are products that are used together, such as computers and software.