BUSINESS FUNDAMENTALSSUPPLY and DEMAND

SUPPLY AND DEMAND

Supply Demand represents willingness to

sell at certain price

relationship between price and the quantity supplied (actually sell)

represents willingness and ability to buy at a certain price

relationship between price and quantity demanded (actually buy)

SUPPLY

Is the quantity of goods or services that businesses are willing and able to provide within a range of prices that people would be willing to pay

Law of Supply: the relationship of increasing the quantity supplied as price increases.

CONDITIONS THAT AFFECT SUPPLY:

Change in the number of producers (more businesses, more supply, decrease in price)

Price of related goods: (cost of IPODs increase the demand for MP3 players increases)

Change in technology: (MP3 technology makes the availability demand for CD Walkmans decrease and the supply of CD walkmans increase)

Change in the cost of production: (the lower the cost of production the more that is produced, consider resources)

DEMAND

Is the quantity of a good or service that consumers are willing and able to buy at a particular price.

Law of Demand: Consumers will increase the quantity demanded of a good or service as prices decease and the reverse as prices increase

CONDITIONS THAT AFFECT DEMAND:

A change in consumer tastes, awareness and interest in good or service

Change in consumer income

A change in consumer expectations of future market conditions

A change in population

PRICE

is determined by supply and demand and the cost of production.

SUPPLY AND DEMAND CURVE

Supply Curve Demand Curve Law of Supply

the higher the price of the product, the more the producer will supply

Positive relationship with price, the curve is upward sloping

Law of Demand the higher the

price of the product, the less the consumer will demand

Negative relationship with price, the curve is downward sloping

SUPPLY AND DEMAND CURVE

Equilibrium is reached when both curves intersect.

At this point, the price is just high enough so that the quantity people want to buy is equal to the quantity business want to sell

the quantity demanded = the quantity supplied