Business School 101: Understanding Supply and Demand

Introduction

• Topic: Forces of supply and demand in markets.
• Scenario: Price increase of a latte at a coffee shop.
• Questions addressed:
  • What are supply and demand?
  • How do they determine prices?
  • What is market equilibrium?
  • How are these dynamics represented in graphs?

Section 1: The Law of Demand

• Demand Definition: Quantity of a good/service consumers are willing and able to purchase at various prices.
• Law of Demand:
  • All else being equal, when the price of a good increases, the quantity demanded decreases.
  • Conversely, when the price decreases, the quantity demanded increases.
• Example: Price changes in apples affect consumer purchasing behavior.
• Demand Curve:
  • Slopes downward from left to right.
  • Illustrates that lower prices lead to higher quantities demanded and vice versa.

Section 2: The Law of Supply

• Supply Definition: Quantity of a good/service producers are willing to sell at various prices.
• Law of Supply:
  • All else being equal, when the price of a good increases, the quantity supplied increases.
  • Conversely, when the price decreases, the quantity supplied decreases.
• Example: Bakery adjusts cupcake production based on price.
• Supply Curve:
  • Slopes upward from left to right.
  • Shows that higher prices encourage more supply, while lower prices discourage it.

Section 3: Market Equilibrium

• Definition: Point where supply and demand curves intersect.
• Equilibrium Price & Quantity:
  • Price and quantity at which demand equals supply.
  • Example: Coffee shop sells coffee at equilibrium price.
• Surplus & Shortage:
  • Surplus: Price above equilibrium leads to excess supply.
  • Shortage: Price below equilibrium leads to excess demand.
  • Market forces push prices back toward equilibrium.

Section 4: Shifts in Demand and Supply

• Demand Shifts:
  • Increase shifts curve right; decrease shifts left.
  • Example: Celebrity endorsement increases sneaker demand.
• Supply Shifts:
  • Increase shifts curve right; decrease shifts left.
  • Example: Technological advances or natural disasters affecting wheat supply.

Section 5: Real World Applications

• Housing Market:
  • High demand and low supply drive up prices.
  • Developers increase supply over time.
• Gasoline Prices:
  • Influenced by oil prices and supply changes.
  • Geopolitical factors or increased oil production affect prices.

Section 6: Summary

• Supply and demand are fundamental to market economies.
• They determine prices, production quantities, and distribution.
• Understanding these concepts aids decision-making for consumers, businesses, and policymakers.

Conclusion

• Encouragement to engage with content (comments, likes, subscriptions).