Vypracované otázky: General Economics

Demand is the relationship between price and quantity demanded at a given price.
Supply is the relationship between price and quantity supplied at a given price.

A Change in Demand with supply held constant
1. An increase in demand will rise the price and increase the quantity traded.
2. A decrease in demand will lower the price and reduce the quantity traded.
Changes in both Demand and Supply
If demand and supply change in the same direction, it is possible to know the changes in quantity, but the effect on price is uncertain. E.g. if the price of a complement falls, and also the firm’s technology advances, the demand and supply curves both shift rightward. As a result, the quantity increases, but the price may
• rise (if the demand shift is larger)
• fall (if the supply shift is larger)
• stay the same (if the shifts are of equal size)

If supply and demand changes in opposite directions, we can always determine the effect on price but the impact on the quantity is ambiguous. For example, if the price of a substitute falls (so that the demand curve shifts leftward) while simultaneously technology advances (which causes the supply curve shifts rightward), the price will definitely fall but the quantity may