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Heinrich Struck
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Demand and supply
Heinrich Struck
12.11.2008
2
Index of contents
Introduction... 3
Demand schedule... 3
The supply schedule... 4
Equilibrium... 6
Elasticity ... 7
Shortages and Surpluses ... 8
History ... 9
References ... 10
3
Introduction
When people's actions are based on self-interest, people respond to incentives,
that is, to costs and benefits. When the costs of an activity are raised or the
benefits reduced, people do less of the activity. Economists have found that they
can use this simple idea of action based on costs and benefits to constructs model
that explains how many markets work. This model, the model of demand and
supply, is perhaps the most basic of the models economists use to explain the
world around us. In a competitive market price will function to equalize the quantity
demanded by consumers, and the quantity supplied by producers.
Demand schedule
The demand schedule, depicted graphically as the demand curve, demonstrates
the relationship between price and the amount of products people want to buy. This
relationship is inverse or indirect because as price gets higher, people want less of
a particular product. This inverse relationship is found in studies of particular
products, and high frequent occurrence has given it a special name: the law of
demand.
There are various ways to express the relationship between price and the quantity
that people will buy. Mathematically, one can say quantity demanded is a function
of price. An elementary way to capture the relationship is the form of a table. The
numbers in the table below are what one expects in a demand curve: as price goes
up, the amount people are willing to buy decreases. ( A widget is an imaginary
product that some economists invented when he could not think of a real product to
use in an example.)
4
A Demand Curve
Price of widgets
Number of widgets people
want to buy
$ 1.00
100
$ 2.00
90
$ 3.00
70
$ 4.00
40
The same information can also be plotted on a graph, where it will look like the
graph below:
The demand curve is based on the observation that the lower the price of a
product, the more of it people will demand.
There may be occasional exceptions to this behaviour (and indeed economists
have developed the theoretical possibility of such an exception), but they are so
few and short-dated that economists refer to the negative relationship between
price and quantity demanded as the "law of demand ".Because the law of demand,
demand curves are always shown as downward sloping, with the price on the
vertical axis and the quantity demanded on the horizontal axis.
The supply schedule
The supply schedule, graphically represented by the supply curve, is the
relationship between market price and amount of goods produced. The basic
notion behind the supply curve is that the higher the price of a product, the more of
it producers will supply. In other words supply curves are upward sloping. Though
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Beschreibung

Titel:
Demand and supply
Veranstaltung:
Keine
Autor:
Heinrich Struck
Jahr:
2008
Seiten:
11
Archivnummer:
V118556
ISBN (eBook):
978-3-640-21194-4
DOI:
10.3239/9783640211944
Dateigröße:
182 KB
Sprache:
Englisch

Schlagworte:
Demand

Arbeit zitieren:

Heinrich Struck, 2008, Demand and supply, München, GRIN Verlag GmbH

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