Introduction to microeconomics
Supply and Demand
Supply and demand are the two forces that interact in a market economy to determine prices
and quantities of goods and services. The demand for a product refers to the quantity of the
product that consumers are willing and able to buy at a given price. It is determined by
factors such as income, tastes and preferences, the price of related goods, and the number
of consumers in the market. The demand curve shows the relationship between the price of
a product and the quantity demanded.
The supply of a product refers to the quantity of the product that producers are willing and
able to sell at a given price. It is determined by factors such as the cost of production,
technology, and the number of producers in the market. The supply curve shows the
relationship between the price of a product and the quantity supplied.
The equilibrium price and quantity occur where the demand curve intersects the supply
curve. At this point, the quantity demanded equals the quantity supplied, and the market is in
balance. If the price is below the equilibrium price, there is excess demand, and a shortage
occurs. If the price is above the equilibrium price, there is excess supply, and a surplus
occurs. In either case, the market will adjust through changes in price and quantity until it
reaches the equilibrium point.
Elasticity
Elasticity measures the responsiveness of demand or supply to changes in price or other
variables. The price elasticity of demand measures the percentage change in quantity
demanded resulting from a percentage change in price. It is calculated as the percentage
change in quantity demanded divided by the percentage change in price.
If the demand for a product is elastic, a small change in price will result in a large change in
quantity demanded. For example, if the price of a product increases by 10%, and the
quantity demanded falls by 20%, the price elasticity of demand is -2. This means that the
demand for the product is highly responsive to changes in price.
If the demand is inelastic, a change in price will have a relatively small effect on the quantity
demanded. For example, if the price of a product increases by 10%, and the quantity
demanded falls by 5%, the price elasticity of demand is -0.5. This means that the demand for
the product is not very responsive to changes in price.
The elasticity of demand is influenced by factors such as the availability of substitutes, the
proportion of income spent on the product, and the time period under consideration. In
general, goods that have many substitutes, are a small proportion of income, and have a
longer time horizon for consumers to adjust their behavior are likely to have a more elastic
demand.
Supply and Demand
Supply and demand are the two forces that interact in a market economy to determine prices
and quantities of goods and services. The demand for a product refers to the quantity of the
product that consumers are willing and able to buy at a given price. It is determined by
factors such as income, tastes and preferences, the price of related goods, and the number
of consumers in the market. The demand curve shows the relationship between the price of
a product and the quantity demanded.
The supply of a product refers to the quantity of the product that producers are willing and
able to sell at a given price. It is determined by factors such as the cost of production,
technology, and the number of producers in the market. The supply curve shows the
relationship between the price of a product and the quantity supplied.
The equilibrium price and quantity occur where the demand curve intersects the supply
curve. At this point, the quantity demanded equals the quantity supplied, and the market is in
balance. If the price is below the equilibrium price, there is excess demand, and a shortage
occurs. If the price is above the equilibrium price, there is excess supply, and a surplus
occurs. In either case, the market will adjust through changes in price and quantity until it
reaches the equilibrium point.
Elasticity
Elasticity measures the responsiveness of demand or supply to changes in price or other
variables. The price elasticity of demand measures the percentage change in quantity
demanded resulting from a percentage change in price. It is calculated as the percentage
change in quantity demanded divided by the percentage change in price.
If the demand for a product is elastic, a small change in price will result in a large change in
quantity demanded. For example, if the price of a product increases by 10%, and the
quantity demanded falls by 20%, the price elasticity of demand is -2. This means that the
demand for the product is highly responsive to changes in price.
If the demand is inelastic, a change in price will have a relatively small effect on the quantity
demanded. For example, if the price of a product increases by 10%, and the quantity
demanded falls by 5%, the price elasticity of demand is -0.5. This means that the demand for
the product is not very responsive to changes in price.
The elasticity of demand is influenced by factors such as the availability of substitutes, the
proportion of income spent on the product, and the time period under consideration. In
general, goods that have many substitutes, are a small proportion of income, and have a
longer time horizon for consumers to adjust their behavior are likely to have a more elastic
demand.
