Demand and Supply

Demand and Supply

DEMAND

Demand - quantities people are willing and able to buy at various prices.

The Law of Demand -there is an inverse relationship between price and quantity demanded.

What causes a "change in quantity demanded"? (∆QD) - ∆ in price.

What causes a "change in demand"? (∆D) 

1. ∆ in buyers' taste (advertising)
2. ∆ in income (normal goods + inferior goods)
3. ∆ in price of related goods
4. ∆ in expectations
5. ∆ in buyers (population)

SUPPLY 

Supply - the quantities that producers or sellers are willing and able to produce or sell at various prices.

The Law of Supply - there is a direct relationship between price and quantity supplied.

What causes a "change in quantity supplied"? (∆QS) - ∆ in price.

What causes a "change in supply"? (∆S)

1. ∆ in technology
2. ∆ in weather
3. ∆ in resource or factor prices
4. ∆ in taxes or subsidies
5. ∆ in number of suppliers
6. ∆ in expectations

Let's look at an example graph.

Apple Computers vs. Microsoft Computers

Before Apple's new operating system:

What happened to the second graph? Why is there a new line labeled "D1"? How do you determine what is changing? Well, popularity has nothing to do with supply, does it? If Pepsi is increasing in popularity, then this is a change in D, or demand, also expressed as "∆D". The Demand line has moved to the right, meaning that it is higher than it used to be. Anything that increases shifts to the right, and anything that shifts to the left, decreases. Very easy.

Practice Questions: 

1. Considering that Apple Inc. and their computers have experienced dramatic errors since their new operating system has launched. The popularity of Mac and all Apple computer products has dropped, and people started buying in more Microsoft. What could be a determinant and the movement?

Factor:  ∆ in buyers' taste                                                                       Movement: increasing

If you're still not sure about the graphs, terminology or how to draw a graph, I'd recommend you watch this video: