In this course, we've discussed fundamental concepts in economics - supply and demand. Hopefully the forces that cause changes in supply and demand aren't mysterious anymore. Let's recap.
The law of demand describes the behavior of buyers. In general, people will demand - that is buy - more of a good or service at lower prices than at higher prices. When this relationship is graphed, the result is a demand curve.
A change in price results in movement along the demand curve from one point to another and is called a change in the quantity demanded. When other factors in the market change, the demand curve shifts to the left or the right. This is a change in demand.
The law of supply describes the behavior of sellers. Remember sellers and supply both begin with s. In general, sellers will supply more of a good at higher prices than at lower prices. When this relationship is graphed, the result is an upward-sloping supply curve.
A change in price results in movement along the supply curve from one point to another. This is called a change in the quantity supplied. When factors in the market change, the supply curve shifts to the left or the right. This is called a change in supply.
Supply and demand together determine market equilibrium. On a graph, market equilibrium is the point where the supply and demand curves intersect. The price at this intersection is the equilibrium price and the quantity is the equilibrium quantity. When the market for good or service is in equilibrium, there are no surpluses and no shortages.
As buyers and sellers interact, the market will trend toward equilibrium quantity and equilibrium price. It's as if an invisible hand pushes and pulls markets toward equilibrium levels.
There are several resources you may find helpful of the basic content discussed in this course.
The Economic Lowdown Podcast Series:
The Economic Lowdown Video Companion Series:
Now, click next to take the assessment and demonstrate your understanding of the material provided in this course.