By Flavio Alves 13I

Supply and Demand

When businesses are considering the price of their products and services, they will sometimes go and look at Supply and Demand.

Supply looks at the price setting point, from the view of the business.

Demand looks at the same process, but from the consumer/customer’s views.

Supply and Demand

What is it?Definition – Supply is the amount of goods

that producers are willing to supply or sell at a given price.

Supply

What is it?Definition – Demand is an amount that an

individual or individuals are willing to buy at a given price.

Demand

What is it?Equilibrium is when the Demand and Supply

are equal.

Equilibrium

0 10 20 30 40 50 60 70 800

0.5

1

1.5

2

2.5

3

3.5

4

90

Supply Curve

This is a Supply Curve

Price ($)

Quantity Supplied

Supply Curve

0 10 20 30 40 50 60 70 800

0.51

1.52

2.53

3.54

90

Now, by what you see here, the quantity that is being supplied is raising, therefore meaning that the price is also raising, because the demand is increasing. Price

($)

Quantity Supplied

Supply Curve (Example)

0 10 20 30 40 50 60 70 800

0.51

1.52

2.53

3.54

90

Price ($)

Quantity Supplied

Here’s an example. A farmer has gone to the market to sell the apples he picked from his apple tree.

Because demand for

the farmer’s apples

were increasing,

The farmer decided

to increase the price

for his apples, which

means that he will

gain more profit.

Supply Curve (Example)

0 10 20 30 40 50 60 70 800

0.51

1.52

2.53

3.54

90

Quantity Supplied

Price ($)

-----------------

Now, for every 9 apples that were sold approximately, the prices of the apples were 50 cents. Because the farmer realised how the demand was increasing, he decided to raise the price for the apples. Below are the results for how many apples were supplied at what prices.

It shows the demand

increasing, which is

what made the farmer

increase the apple price,

because he wanted to

make the most profit

possible.

Demand Curve

0 10 20 30 40 50 60 70 800

0.5

1

1.5

2

2.5

3

3.5

4

90

This is a Demand Curve

Price ($)

Quantity Supplied

Demand Curve

0 10 20 30 40 50 60 70 800

0.51

1.52

2.53

3.54

90

Price ($)

Quantity Demanded

Now, by what you see here, the quantity that is being demanded is increasing because the price is decreasing. This is because if the price is lower, then more people will want to purchase the product.

Demand Curve (Example)

0 10 20 30 40 50 60 70 800

0.51

1.52

2.53

3.54

90

Price ($)

Quantity Demanded

Here’s an example. In a primary school, they are selling Mars Bars at the canteen for $4. Because the price is so high, only approximately 4 people would buy them. Whereas if the price was lowered to 50 cents per Mars Bar, approximately 90 people would buy them.

Because the demand

for Mars Bars were low

at the price of $4, then

the school had no

choice but to lower the

price of them, which

would then increase

the demand.

Equilibrium

0 10 20 30 40 50 60 70 800

0.51

1.52

2.53

3.54

90

Price ($)

Quantity Demanded

Equilibrium is when both Supply and Demand curves intersect. The equilibrium is in the middle, which is the amount that the sellers and/or buyers are happy to pay/sell for the selected products.

Therefore, in this case

the amount demanded

at the price of approx.

$2.20, would be

approximately 48,

because this is the

equilibrium point.

Equilibrium

Lack of Raw MaterialsInput PriceCommunicationSub-ProductsTaxes and SubsidiesSeasonality of Material

Factors that affect Supply

Seasonality of ProductsDisposable IncomeState of EconomyCompetitorsDemographicPriceComplimentary Product

Factors that affect Demand

How the curves show a change in Demand

0 250 500 750 10000

0.5

1Price ($)

Quantity Demanded

Let’s say that Mars Bars are being supplied again.

They are going for 50p at a canteen in a school again.

Now, because half of the school is on a trip,

only approximately 500 Mars Bars were

sold, on the Monday.

D1

How the curves show a change in Demand

0 250 500 750 1000

0

0.5

1

Price ($)

Quantity Demande

d

On Tuesday, the other half

of the school are back at school

again. Because everyone is back, the

school were able to sell 1000

Mars bars this time, at the

same price.

D1D2

How the curves show a change in Demand

0 250 500 750 1000

0

0.5

1

Quantity Demande

d

Now, the change could also be decreased, if for example 75% of

the school is out on a trip, and only the badly-behaved students stayed. Because there were not

so many students, then only 250

Mars bars were sold.

D1D2

Price ($)

D3

How the curves show a change in Supply

0 3 5 7 100

10

20

30

40Price ($)

Quantity Supplied

Let’s say an owner of a pit has a budget of $100 per week for

labour. The wage of his workers is $20 a week. Then he will employ 5

workers.

S1

How the curves show a change in Supply

0 3 5 7 100

10

20

30

40Price ($)

Quantity Supplied

Now, imagine that the wage of his workers

dropped down to $10 a week. This means

that the owner can be supplied with 10

workers, which means he will be able to supply much faster

to the market.

S1S2

0 3 5 7 100

10

20

30

40Price ($)

Quantity Supplied

S1S2

S3

But the quantity supplied could also

be decreased. If the wages per week

went up to $30, then the owner could own

be supplied with 3 workers, meaning he

can’t supply to the market as fast.

How the curves show a change in Supply