Objective 9: Supply and Demand
The interaction of supply and demand in a market economy determines price.
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| Definition | Laws | Determinants | Equilibrium |
Demand | Willingness and ability to buy various quantities of a good or service at various prices | Law of Demand: Quantity demanded varies inversely to price. If all else remains equal, the lower the price, the higher the quantity demanded, and the higher the price, the lower the quantity demanded. | Factors other than price influencing demand: substitutes, complements, number of demanders, consumer preference, income
| Equilibrium is the point where supply and demand balance each other; below this point is a shortage, and above this point is a surplus. |
Supply | Willingness and ability to provide various quantities of a good or service at various prices | Law of Supply: Quantity supplied varies directly with price. If all else remains equal, the lower the price, the lower the quantity supplied, and the higher the price, the higher the quantity supplied. | Factors other than price influencing supply: number of producers, technology, government policies, productivity of resources | Equilibrium is the point where supply and demand balance each other; below this point is a shortage, and above this point is a surplus. |
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