Text 5. Demand and supply

Demand is the quantity of a good that buyers wish to buy at each price. Other things equal at low prices the demanded quantity is higher.

Supply is the quantity of a good that sellers wish to sell at each price. Other things equal, when prices are high, the supplied quantity is high as well.

The market is in equilibrium when the price regulates the quantity supplied by producers and the quantity demanded by consumers. When prices are not so high as the equilibrium price, there is excess demand (shortage) raising the price. At prices above the equilibrium price, there is excess supply (surplus) reducing the price.

There are some factors influencing demand for a good, such as the prices of other goods, consumer incomes and some others.

An increase in the price of a substitute good (or a decrease in the price of a complement good) will at the same time raise the demanded quantity.

As consumer income is increased, demand for a normal good will also increase but demand for an inferior good will decrease. A normal good is a good for which demand increases when incomes rise. An inferior good is a good for which demand falls when incomes rise.

As to supply, some factors are assumed as constant. Among them are technology, the input price, as well as degree of government regulation. An improvement in technology is as important for increasing the supplied quantity of a good as a reduction in input prices.

Government regulates demand and supply, imposing ceiling prices (maximum prices) and floor prices (minimum prices) and adding its own demand to the demand of the private sector.

1. Agree or disagree. Correct wrong statements.

1. Demand is the quantity of a good that sellers wish to sell at each price.

2. Supply is the quantity of a good that buyers wish to buy at each price.

3. The market is in equilibrium when the price regulates the quantity supplied by producers and the quantity demanded by consumers.

4. When prices are not so high as the equilibrium price, there is surplus raising the price.

5. At prices above the equilibrium price, there is shortage reducing the price.

6. An increase in the price of a substitute good raises the demanded quantity.

7. When consumer income is increased, the demand for a normal good decreases.

8. A normal good is a good for which demand increases when incomes rise.

9. An inferior good is a good for which demand falls when incomes rise.

10. Technology, the input price, government regulation are constant factors influencing supply.

11. Demand and supply are regulated by government by means of ceiling prices, floor prices, and adding its own demand to the demand of the private sector.

1. As consumer income is increased, demand for a normal good will also increase, but demand for an inferior good will decrease.

Дата добавления: 2017-01-14