Unit 1 - Supply Demand Equilibrium PDF

**UNIT 1- SUPPLY DEMAND EQUILIBRIUM** **Economics cover a wide range of factors. Economists study all human behavior as a person's decision like buying a car or saving the money or invest the money. Economic outcomes come from the choices. An economic agent is an individual or or a group that make...

**UNIT 1- SUPPLY DEMAND EQUILIBRIUM** **Economics cover a wide range of factors. Economists study all human behavior as a person's decision like buying a car or saving the money or invest the money. Economic outcomes come from the choices. An economic agent is an individual or or a group that make choices. A consumer, a university, the army or government that make choices and have an economic output.** **Therefore, economics is the study of how agents choose to allocate scarce resources and how those choices affect society. Demand and supply choices are the basic factor of the markets.** **The interaction between buyers and sellers determines the market price in a competitive market. Demand can be created both for goods or services.** **GOODS and SERVICES: Goods refer to tangible items that can be used, stored, evaluated, taken home, or consumed. They vary from appliances and clothing to automobiles. On the other hand, in economics services are intangible properties where the service receiver does not obtain anything tangible or ownership.** **SUPPLY: The amount of goods and services that sellers are willing to supply. As the price goes up willingness to supply increases as well.** The supply curve by itself does not tell us how many goods will be sold in each day. To find the prevailing price and quantity. The demand curve tells us the total quantity of goods that buyers wish to buy at various prices. The demand curve tells us that the higher the price of goods becomes, the fewer goods buyers wish to buy. If the price of one hamburger 10, 25 pieces are supplied. When the price goes up to 20 45 pieces are supplied. When price goes up to 30, 65 pieces are supplied. DEMAND GRAPHIC  Economists use the term **demand** to refer to the amount of some good or service consumers are willing and able to purchase at each price. Demand is based on needs and wants---a consumer may be able to differentiate between a need and a want, but from an economist's perspective they are the same thing. Demand is also based on ability to pay. If you cannot pay, you have no effective demand. Demand curves will be somewhat different for each product. They may appear relatively steep or flat, and they may be straight or curved. Nearly all demand curves share the fundamental similarity that they slope down from left to right, embodying the law of demand: As the price increases, the quantity demanded decreases, and, conversely, as the price decreases, the quantity demanded increases. **DEMAND-SUPPLY EQUILIBRIUM** çizgi, öykü gelişim çizgisi; kumpas; grafiğini çıkarma, diyagram, ekran görüntüsü içeren bir resim Açıklama otomatik olarak oluşturuldu **EXCESS DEMAND CURVE**  **The price of the goods is less than the equilibrium price, buyers demanded Qd quantity with P1 price but sellers are willing to supply only Qs quantity with P1 price so there is an excess demand in the market.** **EXCESS SUPPLY CURVE** **If the price of goods in the market is higher than the equilibrium price, either buyers or sellers would not be satisfied.** metin, diyagram, çizgi, öykü gelişim çizgisi; kumpas; grafiğini çıkarma içeren bir resim Açıklama otomatik olarak oluşturuldu **When the quantity firms supply is greater than the quantity customers want to buy. This is resolved when firms reduce prices to sell off excess supply.** **FOUR SIMPLE RULES** **An increase in demand will lead to an increase in both the equilibrium price and quantity.** **A decrease in demand will lead to a decrease in both the equilibrium price and quantity.** **An increase in supply will lead to a decrease in the equilibrium price and an increase in the equilibrium quantity.** **A decrease in supply will lead to an increase in the equilibrium price and a decrease in the equilibrium quantity.** **FACTORS AFFECTING DEMAND** - **A decrease in the price of complements to the good or service (Because the total cost is decreased together with the price.** - **An increase in the substitutes for the good or service. (When the price of donuts increases, demand to cake may increase.)** - **An increase in income** - **An increased preference due to fashion, popularity or effectiveness.** - **An increase in the population of potential buyers.** - **A decrease in the cost of materials, labor or other inputs used in the production of the good or services.) Cost of the goods are decreased but the equilibrium price is the same so the supplier will earn more and willing to produce more.** - **An improvement in technology that reduces the cost of producing the good or service.**