Lecture on Supply and Demand

Key Concepts

• Price: Measured on the y-axis of the graph.
• Quantity: Measured on the x-axis of the graph.
• Demand Curve: Downward sloping, indicating a negative relationship between price and quantity demanded.
• Supply Curve: Upward sloping, indicating a positive relationship between price and quantity supplied.
• Equilibrium: The point where the quantity demanded equals the quantity supplied.

Demand and Supply Data

• Prices: 1, 2, 3, 4, 5
• Quantity Demanded at Each Price:
  • Price 1: 10 units
  • Price 2: 8 units
  • Price 3: 6 units
  • Price 4: 4 units
  • Price 5: 2 units
• Quantity Supplied at Each Price:
  • Price 1: 2 units
  • Price 2: 4 units
  • Price 3: 6 units
  • Price 4: 8 units
  • Price 5: 10 units

Graphical Representation

• Demand Curve: Connects the points of quantity demanded over different prices, forming a downward slope.
• Supply Curve: Connects the points of quantity supplied over different prices, forming an upward slope.

Equilibrium Analysis

• Equilibrium Price: 3
• Equilibrium Quantity: 6
• Intersection Point: On the graph, where the demand curve and supply curve meet.

Impact of Price Changes

• Price Above Equilibrium (e.g., Price 4):
  • Quantity demanded: 4 units
  • Quantity supplied: 8 units
  • Surplus: 4 units (8 supplied - 4 demanded)
  • Impact: Prices will decrease until equilibrium is reached.
• Price Below Equilibrium (e.g., Price 1):
  • Quantity demanded: 10 units
  • Quantity supplied: 2 units
  • Shortage: 8 units (10 demanded - 2 supplied)
  • Impact: Prices will increase until equilibrium is reached.

Market Self-Regulation

• Surplus: Leads to price reductions until equilibrium is achieved.
• Shortage: Results in price increases until equilibrium is achieved.
• Free Market: Characterized by self-correction towards equilibrium.