Study Notes
Demand and supply curves illustrate how prices and quantities interact in a market. They show the relationship between price changes and the quantity demanded or supplied, and how various factors can shift these curves.
- Effective Demand — demand backed by financial means to make a purchase.
Example: Consumers wanting and being able to buy a smartphone. - Individual Demand Curve — shows the quantity a specific consumer is willing to buy at different prices.
Example: A graph showing how many apples one person buys at varying prices. - Market Demand — total quantity all consumers in a market are willing to buy at different prices.
Example: Combined demand for apples from all consumers in a city. - Derived Demand — demand for a component based on the demand for a final product.
Example: Demand for steel due to demand for cars. - Supply — quantity of a product firms are willing to sell at each price.
Example: A bakery's willingness to sell more bread as prices rise. - Market Supply — total quantity all sellers are willing to sell at different prices.
Example: Total bread supply from all bakeries in a town.
Exam Tips
Key Definitions to Remember
- Effective Demand
- Individual Demand Curve
- Market Demand
- Derived Demand
- Supply
- Market Supply
Common Confusions
- Confusing movement along the curve with shifts in the curve
- Misunderstanding the difference between individual and market demand
Typical Exam Questions
- Explain the difference between a movement along and a shift in the supply curve? Movement is due to price changes; shifts are due to other factors.
- What causes a shift in the demand curve? Changes in income, tastes, or prices of related goods.
- How does a change in price affect quantity supplied? Higher prices increase quantity supplied; lower prices decrease it.
What Examiners Usually Test
- Understanding of the laws of demand and supply
- Ability to interpret demand and supply curves
- Identification of factors causing shifts in demand and supply