Supply and Demand are fundamental concepts in economics.
Typically represented by a graph.
Demand Curve
Definition: Illustrates how much of a good people will want at different price levels.
General Principle: Lower prices increase demand (more people buy more goods).
Example: Black Friday sales increase purchases of shirts, pants, and video games due to lower prices.
Graph Details
Axes:
Vertical: Price
Horizontal: Quantity
Example: Normal vs. Black Friday prices shows increased quantity demanded as prices drop.
Demand Curve for Oil
Importance: Oil is used in various products (fuel for cars, planes, heating, plastics).
Price vs. Demand:
$55 per barrel: Low demand (~5 million barrels)
$20 per barrel: Higher demand (~25 million barrels)
$5 per barrel: Significantly higher demand (~50 million barrels)
Factors Influencing the Demand Curve
High-Value Uses: Products/services with few substitutes (e.g., jet fuel).
Cannot substitute oil with other materials like corn or natural gas for flying jets.
Low-Value Uses: Products/services that can be substituted (e.g., gasoline, plastics).
As oil prices rise, the cost of producing these items increases, leading to changes in consumer behavior (e.g., choosing wooden toys over rubber duckies).
Consumer Behavior
High Prices: Consumers may opt for more fuel-efficient cars or avoid unnecessary travel.
Remaining Demand: Consumers who prioritize high-value uses (e.g., flying planes) continue to demand oil despite increased costs.
Summary
The demand curve is a simple line summarizing diverse consumer responses to price changes.
Additional Resources
Practice Questions: Available for self-assessment.