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Encyclopedia > Supply and demand
The price P of a product is determined by a balance between production at each price (supply S) and the desires of those with purchasing power at each price (demand D). The graph depicts an increase in demand from D1 to D2, along with a consequent increase in price and quantity Q sold of the product.
The price P of a product is determined by a balance between production at each price (supply S) and the desires of those with purchasing power at each price (demand D). The graph depicts an increase in demand from D1 to D2, along with a consequent increase in price and quantity Q sold of the product.

In economics, supply and demand describes market relations between prospective sellers and buyers of a good. The supply and demand model determines price and quantity sold in the market. The model is fundamental in microeconomic analysis of buyers and sellers and of their interactions in a market. It is used as a point of departure for other economic models and theories. The model predicts that in a competitive market, price will function to equalize the quantity demanded by consumers and the quantity supplied by producers, resulting in an economic equilibrium of price and quantity. The model incorporates other factors changing such equilibrium as reflected in a shift of demand or supply. Supply and demand may refer to: Supply and demand, the economic model used in consumer theory Supply and demand (film), the 1922 motion picture Supply and Demand (album), an album from American singer-songwriter, Amos Lee Supply and demand (TV series), a short-lived British television cop drama which aired... Image File history File links Supply-and-demand. ... Image File history File links Supply-and-demand. ... Purchasing Power- the amount of value of a good/services compared to the amount paid. ... A good or commodity in economics is any object or service that increases utility, directly or indirectly, not to be confused with good in a moral or ethical sense (see Utilitarianism and consequentialist ethical theory). ... A diagram of the IS/LM model In economics, a model is a theoretical construct that represents economic processes by a set of variables and a set of logical and quantitative relationships between them. ... Microeconomics is the study of the economic behaviour of individual consumers, firms, and industries and the distribution of production and income among them. ... Look up Market in Wiktionary, the free dictionary. ... Perfect competition is an economic model that describes a hypothetical market form in which no producer or consumer has the market power to influence prices. ... Price of market balance In economics, economic equilibrium is simply a state of the world where economic forces are balanced and in the abscence of external shocks the (equilibrium) values of economic variables will not change. ...

Contents

Fundamental theory of this topic

The intersection of supply and demand curves determines equilibrium price (P0) and quantity (Q0).
The intersection of supply and demand curves determines equilibrium price (P0) and quantity (Q0).

Strictly considered, the model applies to a type of market called perfect competition in which no single buyer or seller has much effect on prices, and prices are known. The quantity of a product supplied by the producer and the quantity demanded by the consumer are dependent on the market price of the product. The law of supply states that quantity supplied is related to price. It is often depicted as directly proportional to price: the higher the price of the product, the more the producer will supply, ceteris paribus. The law of demand is normally depicted as an inverse relation of quantity demanded and price: the higher the price of the product, the less the consumer will demand, cet. par. "Cet. par." is added to isolate the effect of price. Everything else that could affect supply or demand except price is held constant. The respective relations are called the 'supply curve' and 'demand curve', or 'supply' and 'demand' for short. Image File history File links Price_of_market_balance. ... Image File history File links Price_of_market_balance. ... Perfect competition is an economic model that describes a hypothetical market form in which no producer or consumer has the market power to influence prices. ... Market price is an economic concept with commonplace familiarity; it is the price that a good or service is offered at, or will fetch, in the marketplace; it is of interest mainly in the study of microeconomics. ... Ceteris paribus is a Latin phrase, literally translated as with other things [being] the same, and usually rendered in English as all other things being equal. ...


The laws of supply and demand state that the equilibrium market price and quantity of a commodity is at the intersection of consumer demand and producer supply. Here, quantity supplied equals quantity demanded (as in the enlargeable Figure), that is, equilibrium. Equilibrium implies that price and quantity will remain there if it begins there. If the price for a good is below equilibrium, consumers demand more of the good than producers are prepared to supply. This defines a shortage of the good. A shortage results in the price being bid up. Producers will increase the price until it reaches equilibrium. If the price for a good is above equilibrium, there is a surplus of the good. Producers are motivated to eliminate the surplus by lowering the price. The price falls until it reaches equilibrium. A good or commodity in economics is any object or service that increases utility, directly or indirectly, not to be confused with good in a moral or ethical sense (see Utilitarianism and consequentialist ethical theory). ... Price of market balance In economics, economic equilibrium is simply a state of the world where economic forces are balanced and in the abscence of external shocks the (equilibrium) values of economic variables will not change. ...


Supply schedule

The supply schedule is the relationship between the quantity of goods supplied by the producers of a good and the current market price. It is graphically represented by the supply curve. It is commonly represented as directly proportional to price.[1] The positive slope in short-run analysis can reflect the law of diminishing marginal returns, which states that beyond some level of output, additional units of output require larger doses of the variable input. In the long-run (such that plant size or number of firms is variable), a positively-sloped supply curve can reflect diseconomies of scale or fixity of specialized resources (such as farm land or skilled labor). In Economics, short-run refers to the decision-making time frame of a firm in which at least one factor of production is fixed. ... In economics, diminishing returns is the short form of diminishing marginal returns. ... In economic models, the long run time frame assumes no fixed factors of production. ... The rising part of the long-run average cost curve illustrates the effect of diseconomies of scale. ...


For a given firm in a perfectly competitive industry, if it is more profitable to produce at all, profit is maximized by producing to where price is equal to the producer's marginal cost curve. Thus, the supply curve for the entire market can be expressed as the sum of the marginal cost curves of the individual producers.[2] Perfect competition is an economic model that describes a hypothetical market form in which no producer or consumer has the market power to influence prices. ... In economics and finance, marginal cost is the change in total cost that arises when the quantity produced changes by one unit. ...


Occasionally, supply curves do slope upwards. A well known example is the backward bending supply curve of labour. Generally, as a worker's wage increases, he is willing to supply a greater amount of labor (working more hours), since the higher wage increases the marginal utility of working (and increases the opportunity cost of not working). But when the wage reaches an extremely high amount, the laborer may experience the law of diminishing marginal utility in relation to his salary. The large amount of money he is making will make further money of little value to him. Thus, he will work less and less as the wage increases, choosing instead to spend his time in leisure.[3] The backwards-bending supply curve has also been observed in non-labor markets, including the market for oil: after the skyrocketing price of oil caused by the 1973 oil crisis, many oil-exporting countries decreased their production of oil.[4] This supply curve shows how the change in real wage rates affects the amount of hours worked by employees. ... A wage is a compensation which workers receive in exchange for their labor. ... “Marginal revolution” redirects here. ... Opportunity cost is a central concept of microeconomics. ... In economics, marginal utility is the additional utility (satisfaction or benefit) that a consumer derives from an additional unit of a commodity or service. ... The 1973 oil crisis began in earnest on October 17, 1973, when the members of Organization of Arab Petroleum Exporting Countries (OAPEC, consisting of the Arab members of OPEC plus Egypt and Syria) announced, as a result of the ongoing Yom Kippur War, that they would no longer ship petroleum...


The supply curve for public utility production companies is nontraditional. A large portion of their total costs are in the form of fixed costs. The marginal cost (supply curve) for these firms is often depicted as a constant. A public utility is a company that maintains the infrastructure for a public service. ...


Another postulated variant of a supply curve is that for child labor. Supply will increase as wages increase, but at a certain point a child's parents will pull the child from the child labor force due to cultural pressures and a desire to concentrate on education. The supply will not increase as the wage increases, up to a point where the wage is high enough to offset these concerns. For a normal demand curve, this can result in two stable equilibrium points - a high wage and a low wage equilibrium point.[5]


Demand schedule

The demand schedule, depicted graphically as the demand curve, represents the amount of goods that buyers are willing and able to purchase at various prices, assuming all other non-price factors remain the same. The demand curve is almost always represented as downwards-sloping, meaning that as price decreases, consumers will buy more of the good.[1]


Just as the supply curves reflect marginal cost curves, demand curves can be described as marginal utility curves.[6] “Marginal revolution” redirects here. ...


The main determinants of individual demand are: the price of the good, level of income, personal tastes, the population (number of people), the government policies, the price of substitute goods, and the price of complementary goods. In economics, one kind of good (or service) is said to be a substitute good for another kind insofar as the two kinds of goods can be consumed or used in place of one another in at least some of their possible uses. ... A complement good (or complementary good) is a good that should be consumed with another good. ...


The shape of the aggregate demand curve can be convex or concave, possibly depending on income distribution. In economics, aggregate demand is the total demand for goods and services in the economy (Y) during a specific time period. ...


As described above, the demand curve is generally downward sloping. There may be rare examples of goods that have upward sloping demand curves. Two different hypothetical types of goods with upward-sloping demand curves are a Giffen good (a sweet inferior, but staple, good) and a Veblen good (a good made more fashionable by a higher price). A Giffen good is a product for which a rise in price of this product makes people buy even more of the product. ... A staple food is a food that forms the basis of a traditional diet. ... A commodity is a Veblen good if peoples preference for buying it increases as a direct function of its price. ...


Changes in market equilibrium

Practical uses of supply and demand analysis often center on the different variables that change equilibrium price and quantity, represented as shifts in the respective curves. Comparative statics of such a shift traces the effects from the initial equilibrium to the new equilibrium. Comparative statics is the comparison of two different equilibrium states, before and after a change in one of the variables. ...


Demand curve shifts

Main article: Demand curve
An out-ward or right-ward shift in demand increases both equilibrium price and quantity

When consumers increase the quantity demanded at a given price, it is referred to as an increase in demand. Increased demand can be represented on the graph as the curve being shifted outward. At each price point, a greater quantity is demanded, as from the initial curve D1 to the new curve D2. More people wanting coffee is an example. In the diagram, this raises the equilibrium price from P1 to the higher P2. This raises the equilibrium quantity from Q1 to the higher Q2. A movement along the curve is described as a "change in the quantity demanded" to distinguish it from a "change in demand," that is, a shift of the curve. In the example above, there has been an increase in demand which has caused an increase in (equilibrium) quantity. The increase in demand could also come from changing tastes, incomes, product information, fashions, and so forth. In economics, the demand curve can be defined as the graph depicting the relationship between the price of a certain commodity, and the amount of it that consumers are willing and able to purchase at that given price. ... Image File history File links Supply-demand-right-shift-demand. ... Image File history File links Supply-demand-right-shift-demand. ...


If the demand decreases, then the opposite happens: an inward shift of the curve. If the demand starts at D2, and decreases to D1, the price will decrease, and the quantity will decrease. This is an effect of demand changing. The quantity supplied at each price is the same as before the demand shift (at both Q1 and Q2). The equilibrium quantity, price and demand are different. At each point, a greater amount is demanded (when there is a shift from D1 to D2).


Supply curve shifts

An out-ward or right-ward shift in supply reduces equilibrium price but increases quantity
An out-ward or right-ward shift in supply reduces equilibrium price but increases quantity

When the suppliers' costs change for a given output, the supply curve shifts in the same direction. For example, assume that someone invents a better way of growing wheat so that the cost of wheat that can be grown for a given quantity will decrease. Otherwise stated, producers will be willing to supply more wheat at every price and this shifts the supply curve S1 outward, to S2—an increase in supply. This increase in supply causes the equilibrium price to decrease from P1 to P2. The equilibrium quantity increases from Q1 to Q2 as the quantity demanded increases at the new lower prices. In a supply curve shift, the price and the quantity move in opposite directions. Image File history File links Supply-demand-right-shift-supply. ... Image File history File links Supply-demand-right-shift-supply. ... Species T. aestivum T. boeoticum T. dicoccoides T. dicoccon T. durum T. monococcum T. spelta T. sphaerococcum T. timopheevii References:   ITIS 42236 2002-09-22 Wheat Wheat For the indie rock group, see Wheat (band). ...


If the quantity supplied decreases at a given price, the opposite happens. If the supply curve starts at S2, and shifts inward to S1, the equilibrium price will increase, and the quantity will decrease. This is an effect of supply changing. The quantity demanded at each price is the same as before the supply shift (at both Q1 and Q2). The equilibrium quantity, price and supply changed.


When there is a change in supply or demand, there are four possible movements. The demand curve can move inward or outward. The supply curve can also move inward or outward.


See also: Induced demand
Induced demand is the phenomenon that after supply increases, more of a good is consumed. ...


Elasticity

A very important concept in understanding supply and demand theory is elasticity. In this context, it refers to how supply and demand respond to various factors. One way to define elasticity is the percentage change in one variable divided by the percentage change in another variable (known as arc elasticity, which calculates the elasticity over a range of values, in contrast with point elasticity, which uses differential calculus to determine the elasticity at a specific point). It is a measure of relative changes. In economics, elasticity is the ratio of the proportional change in one variable with respect to proportional change in another variable. ...


Often, it is useful to know how the quantity demanded or supplied will change when the price changes. This is known as the price elasticity of demand and the price elasticity of supply. If a monopolist decides to increase the price of their product, how will this affect their sales revenue? Will the increased unit price offset the likely decrease in sales volume? If a government imposes a tax on a good, thereby increasing the effective price, how will this affect the quantity demanded? In economics and business studies, the price elasticity of demand (PED) is an elasticity that measures the nature and percentage of the relationship between changes in quantity demanded of a good and changes in its price. ... In economics, the price elasticity of supply measures the responsiveness of the quantity supplied of a good to its price. ... This article is about the economic term. ... “Taxes” redirects here. ...


Another distinguishing feature of elasticity that it is more than just the slope of the function. For example, a line with a constant slope will have different elasticity at various points. Therefore, the measure of elasticity is independent of arbitrary units (such as gallons vs. quarts, say for the response of quantity demanded of milk to a change in price), whereas the measure of slope only is not.


One way of calculating elasticity is the percentage change in quantity over the associated percentage change in price. For example, if the price moves from $1.00 to $1.05, and the quantity supplied goes from 100 pens to 102 pens, the slope is 2/0.05 or 40 pens per dollar. Since the elasticity depends on the percentages, the quantity of pens increased by 2%, and the price increased by 5%, so the price elasticity of supply is 2/5 or 0.4.


Since the changes are in percentages, changing the unit of measurement or the currency will not affect the elasticity. If the quantity demanded or supplied changes a lot when the price changes a little, it is said to be elastic. If the quantity changes little when the prices changes a lot, it is said to be inelastic. An example of perfectly inelastic supply, or zero elasticity, is represented as a vertical supply curve. (See that section below) The supply and demand model describes how prices vary as a result of a balance between product availability at each price (supply) and the desires of those with purchasing power at each price (demand). ...


Elasticity in relation to variables other than price can also be considered. One of the most common to consider is income. How would the demand for a good change if income increased or decreased? This is known as the income elasticity of demand. For example, how much would the demand for a luxury car increase if average income increased by 10%? If it is positive, this increase in demand would be represented on a graph by a positive shift in the demand curve. At all price levels, more luxury cars would be demanded. Income, generally defined, is the money that is received as a result of the normal business activities of an individual or a business. ... In economics, the income elasticity of demand measures the responsiveness of the quantity demanded of a good to the income of the people demanding the good. ... Car redirects here. ...


Another elasticity sometimes considered is the cross elasticity of demand, which measures the responsiveness of the quantity demanded of a good to a change in the price of another good. This is often considered when looking at the relative changes in demand when studying complement and substitute goods. Complement goods are goods that are typically utilized together, where if one is consumed, usually the other is also. Substitute goods are those where one can be substituted for the other, and if the price of one good rises, one may purchase less of it and instead purchase its substitute. In economics, the cross elasticity of demand or cross price elasticity of demand measures the responsiveness of the quantity demanded of a good to a change in the price of another good. ... A complement or complementary good is defined in economics as a good that should be consumed with another good; its cross elasticity of demand is negative. ... In economics, one kind of good (or service) is said to be a substitute good for another kind insofar as the two kinds of goods can be consumed or used in place of one another in at least some of their possible uses. ...


Cross elasticity of demand is measured as the percentage change in demand for the first good that occurs in response to a percentage change in price of the second good. For an example with a complement good, if, in response to a 10% increase in the price of fuel, the quantity of new cars demanded decreased by 20%, the cross elasticity of demand would be -2.0.


Vertical supply curve (Perfectly Inelastic Supply)

When demand D1 is in effect, the price will be P1. When D2 is occurring, the price will be P2. Notice that at both values the quantity is Q. Since the supply is fixed, any shifts in demand will only affect price.
When demand D1 is in effect, the price will be P1. When D2 is occurring, the price will be P2. Notice that at both values the quantity is Q. Since the supply is fixed, any shifts in demand will only affect price.

It is sometimes the case that a supply curve is vertical: that is the quantity supplied is fixed, no matter what the market price. For example, the surface area or land of the world is fixed. No matter how much someone would be willing to pay for an additional piece, the extra cannot be created. Also, even if no one wanted all the land, it still would exist. Land therefore has a vertical supply curve, giving it zero elasticity (i.e., no matter how large the change in price, the quantity supplied will not change). Image File history File links Vertical-supply-left-shift-demand. ... Image File history File links Vertical-supply-left-shift-demand. ... Land in economics comprises all naturally occurring resources whose supply is inherently fixed (i. ...


Supply-side economics argues that the aggregate supply function – the total supply function of the entire economy of a country – is relatively vertical. Thus, supply-siders argue against government stimulation of demand, which would only lead to inflation with a vertical supply curve.[7] Supply-side economics is a school of macroeconomic thought that argues that economic growth can be most effectively created using incentives for people to produce (supply) goods and services, such as adjusting income tax and capital gains tax rates. ...


Other markets

The model of supply and demand also applies to various specialty markets.


The model applies to wages, which are determined by the market for labor. The typical roles of supplier and consumer are reversed. The suppliers are individuals, who try to sell their labor for the highest price. The consumers of labors are businesses, which try to buy the type of labor they need at the lowest price. The equilibrium price for a certain type of labor is the wage.[8] A wage is a compensation which workers receive in exchange for their labor. ...


The model applies to interest rates, which are determined by the money market. In the short term, the money supply is a vertical supply curve, which the central bank of a country can control through monetary policy. The demand for money intersects with the money supply to determine the interest rate.[9] For other senses of this word, see interest (disambiguation). ... This article is about short-term financing. ... In macroeconomics, money supply (monetary aggregates, money stock) is the quantity of currency and money in bank accounts in the hands of the non-bank public available within the economy to purchase goods, services, and securities. ... Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        Monetary policy is the process by which the government, central bank...


Other market forms

The supply and demand model is used to explain the behavior of perfectly competitive markets, but its usefulness as a standard of performance extends to other types of markets. In such markets, there may be no supply curve, such as above, except by analogy. Rather, the supplier or suppliers are modeled as interacting with demand to determine price and quantity. In particular, the decisions of the buyers and sellers are interdependent in a way different from a perfectly competitive market.


A monopoly is the case of a single supplier that can adjust the supply or price of a good at will. The profit-maximizing monopolist is modeled as adjusting the price so that its profit is maximized given the amount that is demanded at that price. This price will be higher than in a competitive market. A similar analysis can be applied when a good has a single buyer, a monopsony, but many sellers. Oligopoly is a market with so few suppliers that they must take account of their actions on the market price or each other. Game theory may be used to analyze such a market. This article is about the economic term. ... In economics, a monopsony (from Ancient Greek μόνος (monos) single + ὀψωνία (opsōnia) purchase) is a market form with only one buyer, called monopsonist, facing many sellers. ... This article does not cite any references or sources. ... Game theory is a branch of applied mathematics that is often used in the context of economics. ...


The supply curve does not have to be linear. However, if the supply is from a profit-maximizing firm, it can be proven that curves-downward sloping supply curves (i.e., a price decrease increasing the quantity supplied) are inconsistent with perfect competition in equilibrium. Then supply curves from profit-maximizing firms can be vertical, horizontal or upward sloping.


Positively-sloped demand curves?

Standard microeconomic assumptions cannot be used to disprove the existence of upward-sloping demand curves. However, despite years of searching, no generally agreed upon example of a good that has an upward-sloping demand curve (also known as a Giffen good) has been found. Some suggest that luxury cosmetics can be classified as a Giffen good. As the price of a high end luxury cosmetic drops, consumers see it as an low quality good compared to its peers. The price drop may indicate lower quality ingredients, thus one would not want to apply such an inferrior product to one's face. For most products, price elasticity of demand is negative. ...


Lay economists sometimes believe that certain common goods have an upward-sloping curve. For example, people will sometimes buy a prestige good (eg. a luxury car) because it is expensive, a drop in price may actually reduce demand. However, in this case, the good purchased is actually prestige, and not the car itself. So, when the price of the luxury car decreases, it is actually decreasing the amount of prestige associated with the good (see also Veblen good). However, even with downward-sloping demand curves, it is possible that an increase in income may lead to a decrease in demand for a particular good, probably due to the existence of more attractive alternatives which become affordable: a good with this property is known as an inferior good. For other uses, see Prestige (disambiguation). ... A commodity is a Veblen good if peoples preference for buying it increases as a direct function of its price. ... In consumer theory, an inferior good is a good that decreases in demand when the consumers income falls, unlike normal goods, for which the opposite is observed. ...


Negatively-sloped supply curve

There are cases where the price of goods gets cheaper, but more of those goods are produced. This is usually related to economies of scale and mass production. One special case is computer software where creating the first instance of a given computer program has a high cost, but the marginal cost of copying this program and distributing it to many consumers is low (almost zero). The increase in output from Q to Q2 causes a decrease in the average cost of each unit from C to C1. ... Mass production is the production of large amounts of standardised products on production lines. ... Software redirects here. ...


Empirical estimation

Demand and supply relations in a market can be statistically estimated from price, quantity, and other data with sufficient information in the model. This can be done with simultaneous-equation methods of estimation in econometrics. Such methods allow solving for the model-relevant "structural coefficients," the estimated algebraic counterparts of the theory. The Parameter identification problem is a common issue in "structural estimation." Typically, data on exogenous variables (that is, variables other than price and quantity, both of which are endogenous variables) are needed to perform such an estimation. An alternative to "structural estimation" is reduced-form estimation, which regresses each of the endogenous variables on the respective exogenous variables. For other uses, see Data (disambiguation). ... In mathematics and linear algebra, a system of linear equations is a set of linear equations such as A standard problem is to decide if any assignment of values for the unknowns can satisfy all three equations simultaneously, and to find such an assignment if it exists. ... Econometrics is concerned with the tasks of developing and applying quantitative or statistical methods to the study and elucidation of economic principles. ... The Parameter identification problem is an issue commonly encountered during estimation of simultaneous equation models in econometrics. ... Exogenous (or exogeneous) (from the Greek words exo and gen, meaning outside and production) refers to an action or object coming from outside a system. ... In an economic model, an endogenous change is one that comes from inside the model and is explained by the model itself. ... The reduced form of an econometric model is one where each endogenous variable is on the left side and all predetermined variables are on the right side of the equation. ...


Macroeconomic uses of demand and supply

Demand and supply have also been generalized to explain macroeconomic variables in a market economy, including the quantity of total output and the general price level. The Aggregate Demand-Aggregate Supply model may be the most direct application of supply and demand to macroeconomics, but other macroeconomic models also use supply and demand. Compared to microeconomic uses of demand and supply, different (and more controversial) theoretical considerations apply to such macroeconomic counterparts as aggregate demand and aggregate supply. Demand and supply may also be used in macroeconomic theory to relate money supply to demand and interest rates. Macroeconomics is the study of the entire economy in terms of the total amount of goods and services produced, total income earned, the level of employment of productive resources, and the general behavior of prices. ... A market economy (also called a free market economy or a free enterprise economy) is an economic system in which the production and distribution of goods and services take place through the mechanism of free markets (though completley useless to some dumbasses) guided by a free price system. ... In economics, the gross domestic product (GDP) is a measure of the amount of the economic production of a particular territory in financial capital terms during a specific time period. ... The price level is a measurement of the average level of prices in an economy. ... Microeconomics is the study of the economic behaviour of individual consumers, firms, and industries and the distribution of production and income among them. ... Macroeconomics is the study of the entire economy in terms of the total amount of goods and services produced, total income earned, the level of employment of productive resources, and the general behavior of prices. ... In economics, aggregate demand is the total demand for goods and services in the economy (Y) during a specific time period. ... In economics, aggregate supply is the total supply of goods and services by a national economy during a specific time period. ... In macroeconomics, money supply (monetary aggregates, money stock) is the quantity of currency and money in bank accounts in the hands of the non-bank public available within the economy to purchase goods, services, and securities. ... An interest rate is the rental price of money. ...


Demand shortfalls

A demand shortfall results from the actual demand for a given product or service being lower than the projected, or estimated, demand for that product or service. Demand shortfalls are caused by demand overestimation in the planning of new products and services. Demand overestimation is caused by optimism bias and/or strategic misrepresentation. Optimism bias is the demonstrated systematic tendency for people to be over-optimistic about the outcome of planned actions. ... Strategic misrepresentation is the planned, systematic distortion or misstatement of fact—lying—in response to incentives in the budget process. ...


History

The phrase "supply and demand" was first used by James Denham-Steuart in his Inquiry into the Principles of Political Economy, published in 1767. Adam Smith used the phrase in his 1776 book The Wealth of Nations, and David Ricardo titled one chapter of his 1817 work Principles of Political Economy and Taxation "On the Influence of Demand and Supply on Price".[10] James Denham-Steuart Sir James Denham-Steuart, 7th Baronet (21 October 1712 – 26 November 1780) was a British economist. ... For other persons named Adam Smith, see Adam Smith (disambiguation). ... Adam Smiths first title page An Inquiry into the Nature and Causes of the Wealth of Nations is the magnum opus of the Scottish economist Adam Smith, published on March 9, 1776, during the Scottish Enlightenment. ... David Ricardo (18 April 1772–11 September 1823), a political economist, is often credited with systematizing economics, and was one of the most influential of the classical economists, along with Thomas Malthus and Adam Smith. ... Principles of Political Economy and Taxation is the title of a book by David Ricardo on ecomonics. ...


In The Wealth of Nations, Smith generally assumed that the supply price was fixed but that its "merit" (value) would decrease as its "scarcity" increased, in effect what was later called the law of demand. Ricardo, in Principles of Political Economy and Taxation, more rigorously laid down the idea of the assumptions that were used to build his ideas of supply and demand. Antoine Augustin Cournot first developed a mathematical model of supply and demand in his 1838 Researches on the Mathematical Principles of the Theory of Wealth. Antoine Augustin Cournot Antoine Augustin Cournot (28 August 1801‑ 31 March 1877) was a French philosopher and mathematician. ...


During the late 19th century the marginalist school of thought emerged. This field mainly was started by Stanley Jevons, Carl Menger, and Léon Walras. The key idea was that the price was set by the most expensive price, that is, the price at the margin. This was a substantial change from Adam Smith's thoughts on determining the supply price. [William Stanley Jevons] William Stanley Jevons (September 1, 1835 - August 13, 1882), English economist and logician, was born in Liverpool. ... Austrian School economist Carl Menger Carl Menger Carl Menger (February 28, 1840 – February 26, 1921) was the founder of the Austrian School of economics. ... Marie-Ésprit-Léon Walras (December 16, 1834 in Évreux, France - January 5, 1910 in Clarens, near Montreux, Switzerland) was a French economist, considered by Joseph Schumpeter as the greatest of all economists. He was a mathematical economist associated with the creation of the general equilibrium theory. ...


In his 1870 essay "On the Graphical Representation of Supply and Demand", Fleeming Jenkin drew for the first time the popular graphic of supply and demand which, through Marshall, eventually would turn into the most famous graphic in economics. Henry Charles Fleeming Jenkin (March 25, 1833 - June 12, 1885) was Professor of Engineering at Edinburgh University, remarkable for his versatility. ...


The model was further developed and popularized by Alfred Marshall in the 1890 textbook Principles of Economics.[10] Along with Léon Walras, Marshall looked at the equilibrium point where the two curves crossed. They also began looking at the effect of markets on each other. Alfred Marshall Alfred Marshall (July 26, 1842–July 13, 1924), born in Bermondsey, London, England, became one of the most influential economists of his time. ... Marie-Ésprit-Léon Walras (December 16, 1834 in Évreux, France - January 5, 1910 in Clarens, near Montreux, Switzerland) was a French economist, considered by Joseph Schumpeter as the greatest of all economists. He was a mathematical economist associated with the creation of the general equilibrium theory. ...


See also

Look up supply, demand in Wiktionary, the free dictionary.

Wikipedia does not have an article with this exact name. ... Wiktionary (a portmanteau of wiki and dictionary) is a multilingual, Web-based project to create a free content dictionary, available in over 151 languages. ... In economics, aggregate demand is the total demand for goods and services in the economy (Y) during a specific time period. ... In economics, aggregate supply is the total supply of goods and services by a national economy during a specific time period. ... Artificial demand constitues demand for something that in the abscence of exposure to the vehicle of creating demand, would not exist. ... In economics and especially in the theory of competition, barriers to entry are obstacles in the path of a firm which wants to enter a given market. ... Supply curve shift Consumer surplus or Consumers surplus (or in the plural Consumers surplus) is the economic gain accruing to a consumer (or consumers) when they engage in trade. ... Consumer theory is a theory of economics. ... In economics, a deadweight loss (also known as excess burden) is a permanent loss of well being to society that can occur when equilibrium for a good or service is not Pareto optimal, (that at least one individual could be made better off without others being made worse off). ... The term surplus is used in economics for several related quantities. ... Taxes and subsidies have the effect of shifting the quantity and price of goods. ... In economics, elasticity is the ratio of the proportional change in one variable with respect to proportional change in another variable. ... In economics, an externality is an impact (positive or negative) on anyone not party to a given economic transaction. ... Foundations of Economic Analysis is a book by Paul A. Samuelson published in 1947 (Enlarged ed. ... It has been suggested that History of economics be merged into this article or section. ... For other uses, see Invisible hand (disambiguation). ... A Labor shortage is an economic condition in which there are insufficient qualified candidates (employees) to fill the market-place demands for employment at any price. ... Microeconomics (or price theory) is a branch of economics that studies how individuals, households, and firms make decisions to allocate limited resources,[1] typically in markets where goods or services are being bought and sold. ... Profit, from Latin meaning to make progress, is defined in two different ways. ... Protectionism is the economic policy of restraining trade between nations, through methods such as high tariffs on imported goods, restrictive quotas, a variety of restrictive government regulations designed to discourage imports, and anti-dumping laws in an attempt to protect domestic industries in a particular nation from foreign take-over... This article or section does not cite any references or sources. ... Gas ration stamps being printed as a result of the 1973 oil crisis Rationing is the controlled distribution of resources and scarce goods or services: it restricts how much people are allowed to buy or consume. ... Real prices and ideal prices refers to a distinction between actual prices paid for products, services, assets and labour, and computed prices which are not actually charged or paid in market trade. ... In economics, Say’s Law or Say’s Law of Markets is a principle attributed to French businessman and economist Jean-Baptiste Say (1767-1832) stating that there can be no demand without supply. ... A supply shock is an event that suddenly changes the price of a commodity or service. ... Adam Smiths first title page An Inquiry into the Nature and Causes of the Wealth of Nations is the magnum opus of the Scottish economist Adam Smith, published on March 9, 1776, during the Scottish Enlightenment. ...

References

  1. ^ a b Note that unlike most graphs, supply & demand curves are plotted with the independent variable (price) on the vertical axis and the dependent variable (quantity supplied or demanded) on the horizontal axis.
  2. ^ Schenk, Robert. Efficiency and Markets. Retrieved on 2007-02-09.
  3. ^ Note that the backwards bending supply curve of labor only applies to an individual worker's supply schedule. If wages are raised for the entire labor market, the supply of labor will generally increase as workers from lower-paying economic sectors move to the sector with the higher wages. The increased amount of workers will compensate for the fact that each individual worker is producing less.
  4. ^ Samuelson, Paul A; William D. Nordhaus (2001). Economics, 17th edition, McGraw-Hill, p. 157. ISBN 0072314885. 
  5. ^ Basu, Kaushik. "The Economics of Child Labor", Scientific American, October, 2003.
  6. ^ Marginal Utility and Demand. Retrieved on 2007-02-09.
  7. ^ Understanding Supply-Side Economics
  8. ^ Kibbe, Matthew B.. The Minimum Wage: Washington's Perennial Myth. Cato Institute. Retrieved on 2007-02-09.
  9. ^ Mead, Art. Interest rates are prices. University of Rhode Island. Retrieved on 2007-02-09.
  10. ^ a b Humphrey, Thomas M. (March/April 1992). "Marshallian Cross Diagrams and Their Uses before Alfred Marshall: The Origins of Supply and Demand Geometry". Economic Review.  Federal Reserve Bank of Richmond.

Year 2007 (MMVII) was a common year starting on Monday of the Gregorian calendar in the 21st century. ... is the 40th day of the year in the Gregorian calendar. ... Paul Anthony Samuelson (born May 15, 1915, in Gary, Indiana) is an American neoclassical economist known for his contributions to many fields of economics, beginning with his general statement of the comparative statics method in his 1947 book Foundations of Economic Analysis. ... William D. Nordhaus (born May 31, 1941 in Albuquerque, New Mexico) is the Sterling Professor of Economics at Yale University. ... The McGraw-Hill Companies, Inc. ... Scientific American is a popular-science magazine, published (first weekly and later monthly) since August 28, 1845, making it the oldest continuously published magazine in the United States. ... Year 2007 (MMVII) was a common year starting on Monday of the Gregorian calendar in the 21st century. ... is the 40th day of the year in the Gregorian calendar. ... The Cato Institute is a libertarian think tank headquartered in Washington, D.C. The Institutes stated mission is to broaden the parameters of public policy debate to allow consideration of the traditional American principles of limited government, individual liberty, free markets, and peace by striving to achieve greater involvement... Year 2007 (MMVII) was a common year starting on Monday of the Gregorian calendar in the 21st century. ... is the 40th day of the year in the Gregorian calendar. ... The University of Rhode Island, commonly abbreviated as URI, is the principal public research university in the State of Rhode Island, with its main campus in Kingston, Rhode Island, and three other campuses located throughout the state. ... Year 2007 (MMVII) was a common year starting on Monday of the Gregorian calendar in the 21st century. ... is the 40th day of the year in the Gregorian calendar. ...

External links

  • "Marshallian Cross Diagrams and Their Uses before Alfred Marshall: The Origins of Supply and Demand Geometry" by Thomas Humphrey (via the Richmond Fed)
  • Supply and Demand book by Hubert D. Henderson at Project Gutenberg.
  • Price Theory and Applications by Steven E. Landsburg ISBN 0-538-88206-9
  • An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith, 1776 [1]
  • By what is the price of a commodity determined?, a brief statement of Karl Marx's rival account [2]
  • The Economic Motivation of Open Source Software: Stakeholder Perspectives, Dirk Riehle, 2007 [3]
  • Supply and Demand by Fiona Maclachlan and Basic Supply and Demand by Mark Gillis, The Wolfram Demonstrations Project.

For other persons named Adam Smith, see Adam Smith (disambiguation). ... Karl Heinrich Marx (May 5, 1818 – March 14, 1883) was a 19th century philosopher, political economist, and revolutionary. ... Microeconomics (or price theory) is a branch of economics that studies how individuals, households, and firms make decisions to allocate limited resources,[1] typically in markets where goods or services are being bought and sold. ... In economics, scarcity is defined as a condition of limited resources, where society does not have sufficient resources to produce enough to fulfill subjective wants. ... Opportunity cost is a central concept of microeconomics. ... In economics, elasticity is the ratio of the proportional change in one variable with respect to proportional change in another variable. ... The term surplus is used in economics for several related quantities. ... Polish meat shop in the 1980s. ... The aggregation problem in economics refers to the difficulty of treating empirical or theoretical aggregates as though they reacted analogously to the behavior of optimizing individual agents as described in general microeconomic theory (Fisher, 1987, p. ... Consumer theory is a theory of economics. ... In microeconomics, production is the act of making things, in particular the act of making products that will be traded or sold commercially. ... In microeconomics, the main criteria by which one can distinguish between different market forms are: the number and size of producers and consumers in the market, the type of goods and services being traded, and the degree to which information can flow freely. ... Welfare economics is a branch of economics that uses microeconomic techniques to simultaneously determine the allocational efficiency of a macroeconomy and the income distribution associated with it. ... Market failure is a term used by economists to describe the condition where the allocation of goods and services by a market is not efficient. ...


  Results from FactBites:
 
Economics Interactive Lecture: Supply and Demand (1428 words)
Excess demand and excess supply are important to the model because they encourage competition that tends to make the price change.
The alternative is to raise supply, which means moving the supply curve to the right.
The supply curve down (to the left) in such a way that the vertical distance between the old supply curve (shown in fl) and the new supply curve (shown in red) is the amount of the tax per pack.
Supply and demand - Wikipedia, the free encyclopedia (4822 words)
The theory of supply and demand is important for some economic schools' understanding of a market economy in that it is an explanation of the mechanism by which many resource allocation decisions are made.
Supply curves are traditionally represented as upward-sloping because of the law of diminishing marginal returns.
The application of supply and demand concepts in macroeconomics is somewhat complicated by the fact that supply and demand analytical concepts are often predicated on the notion of a stable unit of account via which prices can be observed.
  More results at FactBites »

 
 

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