Fundamentals of Supply and Demand Market Dynamics

Market Forces of Supply and Demand - Revision Sheet

1. 📌 Essentials

• Market equilibrium occurs where supply equals demand.
• Demand curves slope downward; supply curves slope upward.
• Price elasticity measures responsiveness of quantity to price changes.
• Surplus occurs when price is above equilibrium; shortage when below.
• Perfect competition features many buyers and sellers; products are identical.
• Law of demand: higher prices lead to lower quantity demanded.
• Law of supply: higher prices lead to higher quantity supplied.
• Demand shifts due to income, tastes, related goods, expectations.
• Supply shifts due to technology, input costs, number of sellers.
• Elasticity influences total revenue: elastic demand means price changes affect total revenue significantly.

2. 🧩 Key Structures & Components

• Demand Curve — shows the relationship between price and quantity demanded.
• Supply Curve — depicts how quantity supplied varies with price.
• Market Equilibrium — intersection of demand and supply curves.
• Surplus & Shortage — imbalance signals market to adjust prices.
• Elasticity — measures how responsive Qd or Qs are to price, income, or related good changes.
• Related Goods — substitutes (positive cross elasticity) and complements (negative cross elasticity).