Supply and Demand

Demand, Law of Demand, Factors Influencing Demand

Demand is the amount of a product that consumers are willing and able to buy at a certain price over a certain period of time,
all other things being equal.

Law of Demand states that, all other things being equal, the lower the price of a product, the greater the demand, and vice
versa. There is an inverse relationship between price and demand.

Factors Influencing Demand:

• Consumer Preferences and Tastes: Influenced by factors such as advertising, fashion, quality of goods, and customs.
• Income Level of the Population: Increasing the income of the population leads to an increase in demand for goods.
• Change in Prices for Interchangeable Goods: When the price of a product increases, consumers may choose
  an alternative product.
• Consumer Expectations: If consumers expect prices to change due to certain factors, this may affect their desire
  to buy the product now, thus influencing demand.
• Deferred Demand Effect: Seasonality of demand. Depending on the season, demand may change.

Supply, Law of Supply, Factors Influencing Supply

Supply is the ability of producers to provide goods to consumers at a certain price. The volume of supply depends on the volume
of production.

Law of Supply states that there is a positive (direct) relationship between price and supply: as the price increases, supply
increases, and vice versa.

Factors Influencing Supply:

• Price of Resources: The cost of resources used in production. Higher resource prices reduce producer profit, decreasing
  the desire to produce goods.
• Level of Technology: Technological improvements usually lead to more efficient use of resources, reducing costs and
  increasing supply.
• Goals of the Company: While most producers aim to maximize profits, some may prioritize other goals, such as
  reducing environmental pollution, which can affect production volume and supply.
• Taxes and Subsidies: Taxes increase costs and reduce supply, while subsidies decrease costs and increase supply.
• Prices of Other Goods: A sharp increase in oil prices can increase the supply of alternative energy sources like coal.
• Expectations of Producers: Expectations of inflation or potential investments can influence supply decisions.
• Number of Producers in the Market: More producers result in greater supply.

Market Equilibrium

Market Equilibrium is a situation where demand equals supply. This is considered the ideal market condition that producers
strive for.

Types of Market Equilibrium:

• Instantaneous Equilibrium: Demand increases, but producers cannot immediately increase supply. Equilibrium
  is achieved by raising prices until demand equals supply.
• Short-term Equilibrium: When demand increases, supply increases by utilizing additional production capacity.
• Long-term Equilibrium: Achieved by expanding production capacity or establishing new enterprises.

Elasticity of Demand

Elasticity of Demand is the consumer's reaction to a change in the price of a product.

Types of Demand:

• Elastic Demand: Demand changes significantly with a change in price.
• Inelastic Demand: Demand does not change significantly with a change in price.
• Perfectly Elastic Demand: There is only one price at which consumers will buy the product. Any change in price can
  lead to zero or unlimited demand.
• Perfectly Inelastic Demand: Demand remains the same regardless of price changes.

Elasticity of Supply

Elasticity of Supply is the degree of sensitivity of supply to a change in the price of a product offered to the consumer.

Types of Elasticity of Supply:

• Inelastic Supply: Supply does not change significantly with a change in price. For example, the fish market, where
  the product must be sold before it spoils.
• Elastic Supply: Supply changes significantly with a change in price. Typical of long-life goods.
• Absolutely Inelastic Supply: Supply remains constant regardless of price changes.
• Absolutely Elastic Supply: There is only one price at which the product will be offered on the market. Any change
  in price leads to a complete cessation of production or an unlimited increase in supply.