Easy Economics by Wilson

MARKET EQUILIBRIUM

In economics, economic equilibrium is a situation in which economic forces such as supply and demand are balanced and in the absence of external influences the (equilibrium) values of economic variables will not change. For example, in the standard text perfect competition, equilibrium occurs at the point at which quantity demanded and quantity supplied are equal. Market equilibrium in this case is a condition where a market price is established through competition such that the amount of goods or services sought by buyers is equal to the amount of goods or services produced by sellers. This price is often called the competitive price or market clearing price and will tend not to change unless demand or supply changes, and quantity is called the "competitive quantity" or market clearing quantity. But the concept of equilibrium in economics also applies to imperfectly competitive markets, where it takes the form of a Nash equilibrium.

In as much as P¹ may be a good price for sellers (because suppliers want to supply more at a higher price), it can not be the equilibrium because it causes consumers to reduce their consumption on the product. Hence in the diagram, the equilibrium becomes P

Population: If the population grows this means that demand will also increase.

Nature of the good: If the good is a basic commodity, it will lead to a higher demand

FACTORS AFFECTING DEMAND

Consumer expectations about future prices, income and availability

If a consumer believes that the price of the good will be higher in the future, he/she is more likely to purchase the good now. If the consumer expects that his/her income will be higher in the future, the consumer may buy the good now. Availability (supply side) as well as predicted or expected availability also affects both price and demand.

Factors affecting demand

Personal Disposable Income

In most cases, the more disposable income (income after tax and receipt of benefits) a person has, the more likely that person is to buy. The more the disposable income a person has means that a person will have the ability to spend more on certain product. An increase in the real income of a person increases the buying power thus increasing the demand for products.

FACTORS AFFECTING DEMAND

Tastes or preferences:

The greater the desire to own a good the more likely one is to buy the good. There is a basic distinction between desire and demand. Desire is a measure of the willingness to buy a good based on its intrinsic qualities. Demand is the willingness and ability to put one's desires into effect. It is assumed that tastes and preferences are relatively constant.

FACTORS AFFECTING DEMAND

Price of related goods:

The principal related goods are complements and substitutes. A complement is a good that is used with the primary good. Examples include bread and butter, automobiles and gasoline. (Perfect complements behave as a single good.) If the price of the complement goes up the quantity demanded of the other good goes down.

Mathematically, the variable representing the price of the complementary good would have a negative coefficient in the demand function. For example, Qd = a - P - Pg where Q is the quantity of automobiles demanded, P is the price of automobiles and Pg is the price of gasoline. The other main category of related goods are substitutes. Substitutes are goods that can be used in place of the primary good. The mathematical relationship between the price of the substitute and the demand for the good in question is positive. If the price of the substitute goes down the demand for the good in question goes down.
For the substitute,there is a positive relationship between the price of substitutes and the demand for a product. If the price of a substitute goes down, so does the demand of a product. If the price of a substitute goes up, so does the demand of a product. A substitute is a product that can perfectly be used in place of another. Examples includes different brands of the same type of bread, rice,etc

FACTORS AFFECTING DEMAND

1. Good's own price
The basic demand relationship is between potential prices of a good and the quantities that would be purchased at those prices. Generally the relationship is negative meaning that an increase in price will induce a decrease in the quantity demanded. This negative relationship is embodied in the downward slope of the consumer demand curve. The assumption of a negative relationship is reasonable and intuitive. For example, if the price of a gallon of milk rose from $5 to a price of $15, this is a big price increase. This significant price increase causes the consumer to demand less of that product at the price of $15 because not only is it more expensive, but the new price is very unreasonable for a gallon of milk.

In economics, demand is the quantity of a good that consumers are willing and able to purchase at various prices during a given period of time. You can not separate willingness to byy and ability to buy. For demand to be effective, those who are willing to purchase a product or service should also be able to do so. For example, we all are willing to possess expensive cars. What limits the majority of people from owning the expensive cars is the ability to buy. Therefore, those who are willing to possess the product but not able to buy can not be counted as effective demand. The same goes when a person is able to buy a product but does not wish to have it. That person is not part of the "effective demand" because they can never buy our product.
The relationship between price and quantity demanded is also known as the demand curve. Demand for a specific item is a function of item's perceived necessity, item's price, item's perceived quality, convenience of item, available alternatives, purchasers' disposable income, purchasers' tastes, and many other factors.

LAW OF SUPPLY

The law of supply is a fundamental principle of economic theory which states that, keeping other factors constant, an increase in price results in an increase in quantity supplied.[1] In other words, there is a direct relationship between price and quantity: quantities respond in the same direction as price changes. This means that producers are willing to offer more of a product for sale on the market at higher prices by increasing production as a way of increasing profits.[2]

In short, the law of supply is a positive relationship between quantity supplied and price and is the reason for the upward slope of the supply curve.

SUPPLY

In economics, supply is the amount of a resource that firms, producers, labourers, providers of financial assets, or other economic agents are willing and able to provide to the marketplace or directly to another agent in the marketplace. Supply can be in currency, time, raw materials, or any other scarce or valuable object that can be provided to another agent. This is often fairly abstract. For example in the case of time, supply is not transferred to one agent from another, but one agent may offer some other resource in exchange for the first spending time doing something. Supply is often plotted graphically as a supply curve, with the quantity provided (the dependent variable) plotted horizontally and the price (the independent variable) plotted vertically.

In the goods market, supply is the amount of a product per unit of time that producers are willing to sell at various given prices when all other factors are held constant. In the labor market, the supply of labor is the amount of time per week, month, or year that individuals are willing to spend working, as a function of the wage rate.

In financial markets, the money supply is the amount of highly liquid assets available in the money market, which is either determined or influenced by a country's monetary authority. This can vary based on which type of money supply one is discussing. M1 for example is commonly used to refer to narrow money, coins, cash, and other money equivalents that can be converted to currency nearly instantly. M2 by contrast includes all of M1 but also includes short-term deposits and certain types of market funds.

Scarcity, choice and opportunity cost
Therefore, it is imperative for an economics student to understand that resources and needs will never match. This is the reason why some commodities have a higher price than others. Those that are in short supply are more expensive than those that are ubiquitous. Imagine, for instance, that gold is found in abundance just like granite and granite is as rare as gold. Which commodity will be expensive?
Due to this scarcity of resources, consumers have to make a choice on what to spend their resources on. Whenever one makes a choice, it means that u are selecting an option or options to take from a wifrr selection of option. When this choice is exercised, there are options that are foregone. This means that there other options that a consumer might have taken but did not do so to accommodate the taken option. Therefore, a cost is incurred in making a choice. This cost is known as opportunity cost.
Opportunity cost can be defined as the next best option foregone. When you make a choice, the option foregone is the opportunity cost of the option taken. For example, one may have two option, either reading this post or chatting with friends on this social network. The opportunity cost of reading this article is chatting with friends, and vise versa. It is, therefore, important to understand that when you spend the money or resources that you have, as a person who understands economics, make sure that the opportunity cost you incur is less than the choice that you take.

Scarcity
Economics is the study of how scarce resources are allocated. It is basically shared among economists that resources are in short supply and they have to satisfy unlimited needs and wants among consumers. Therefore, studying the best way in which these scarce resources may be allocated is the basis of economics.
To have basic examples of scarce resources, we can look at how we all do not have enough time to do what we want, how we have limited finances to buy electronic gadgets, cars, homes, entertainment and other luxuries that we want. To some who may be seen as financially rich, they also do not have enough time (time is also a limited resource) to use the money or to be where their businesses need them. In the end, we can all agree that resources are in short supply. The needs, on the other hand, that people have are always infinite. People have needs that are insatiable, unquenchable. For example, when you don't have a phone, you need a basic phone just to make and answer calls. When you have it, you start to feel you need a better phone that can at least connect you to the internet. Soon you will start to crave for a better one that has good picture quality, faster processing speed, bigger memory space and the list goes on and on. The only thing that will limit people from having as much things as they want are the resources.