Demand: Definition

Desire refers to people's willingness to own a good. Demand is the amount of a good that consumers are willing and able to buy at a given price.

Factors Influencing Demand

The amount of a good demanded depends on:

·                the price of the good;

·                the income of consumers;

·                the demand for alternative goods which could be used (substitutes);

·                the demand for goods used at the same time (complements);

·                whether people like the good (consumer taste).

The demand curve labeled DD in the figure below shows the amount of a good one or more consumers are willing and able to buy at different prices.

Movements Along and Shifts in Demand Curves

A change in price never shifts the demand curve for that good. In the figure below an increase in price results in a movement up the demand curve. The fall in the quantity demanded from Q₁ to Q₂ is sometimes called a contraction in demand.

A demand curve shifts only if there is a change in income, in taste or in the demand for substitutes or complements. In the diagram below a decrease in demand has shifted the demand curve to the left. The new demand curve is D1. An increase shifts the demand curve to the right.

Supply

Factors Influencing Supply

Supply is the amount of a good producers are willing and able to sell at a given price. Supply depends on:

·                the price of the good;

·                the cost of making the good;

·                the supply of alternative goods the producer could make with the same resources (competitive supply);

·                the supply of goods actually produced at the same time (joint supply);

·                unexpected events that affect supply.

The supply curve labeled SS in the figure below shows the amount of a good one or more producers are prepared to sell at different prices.

 

Movements Along and Shifts in Supply Curves

A change in price never shifts the supply curve for that good. In the diagram below an increase in price results in a movement up the supply curve. The increase in quantity supplied from Q₁ to Q₂ is sometimes called an expansion in supply.

A supply curve shifts only if there is:

·                a change in costs;

·                a change in the number of goods in competitive or joint supply; or

·                some unforeseen event which affects production.

In the diagram below an increase in supply shifts the supply curve to the right. A decrease will shift the curve to the left.