Demand and Supply. Market Equilibrium.

Спрос и предложение. Точка равновесия. (на английском языке) ...

1. CONSUMER DEMAND………………………………………………..……..4
1.1 LAW OF DEMAND…………………………………………………….. 5
1.2 CHANGES IN DEMAND………………………………………………. 8

2. PRODUCER SUPPLY ………………………………………………….…… 10
2.1 LAW OF SUPPLY………………………………………………………. 11
2.2 SUPPLY CURVES………………………………………………………. 12
2.3 CHANGES IN SUPPLY…………………………………………………. 14

3. MARKET EQUILIBRIUM………………………………………………….. 16

Спрос и предложение. Точка равновесия. (на английском языке)

In contrast, a change in quantity demanded is a movement from one point to
a n other point—from one price-quantity combination to another—on a fixed demand
curve. The cause of such a change is an increase or decrease in the price of the product under consideration.
2. PRODUCER SUPPLY
Production is the process of turning inputs of scarce resources into an output of goods or services. The role of a firm is to organise scarce resources to satisfy consumer demand in a profitable way. Supply is defined as the willingness and ability of firms to produce a given quantity of output in a given period of time, or at a given point in time, and take it to market. Not all output is taken to market, and some output may be stored and released onto the market in the future.
In economics, supply refers to the amount of a product that producers and firms are willing to sell at a given price when all other factors being held constant. Usually, supply is plotted as a supply curve showing the relationship of price to the amount of product businesses are willing to sell. Supply can be measured for a single factor of production, for a single firm, for an industry and for the whole economy.
Supply refers to the various quantities of a good or service that producers are willing to sell at all possible market prices. Supply can refer to the output of one producer or to the total output of all producers in the market (market supply).
Determinants of supply
2.1 LAW OF SUPPLY
Like the law of demand, the law of supply demonstrates the quantities that will be sold at a certain price. But unlike the law of demand, the supply relationship shows an upward slope. This means that the higher the price, the higher the quantity supplied. Producers supply more at a higher price because selling a higher quantity at a higher price increases revenue. 
A, B and C are points on the supply curve. Each point on the curve reflects a direct correlation between quantity supplied (Q) and price (P). At point B, the quantity supplied will be Q2 and the price will be P2, and so on.
A supply schedule shows the relationship between price and planned supply over a hypothetical range of prices. For example, this supply schedule shows how many cans of cola would be supplied by a school or college canteen in a single week. The higher the price, the greater the quantity supplied. A supply curve is derived from a supply schedule. The upward slope of a supply curve illustrates the direct relationship between supply decisions and price.
A supply schedule is a table that shows the quantities producers are willing to supply at various prices
Price per Widget ($)
Quantity Supplied of Widget per day
$5
10
$4
8
$3
6
$2
4
$1
2
A supply schedule can be shown as points on a graph.
The graph lists prices on the vertical axis and quantities supplied on the horizontal axis.
Each point on the graph shows how many units of the product or service a producer (or group of producers) would willingly sell at a particular price.
The supply curve is the line that connects these points.
2.2 SUPPLY CURVES
As the price for a good rises, the quantity supplied rises and the quantity demanded falls. As the price falls, the quantity supplied falls and the quantity demanded rises. The law of supply holds that producers will normally offer more for sale at higher prices and less at lower prices.
The reason the supply curve slopes upward is due to costs and profit. Producers purchase resources and use them to produce output. Producers will incur costs as they bid resources away from their alternative uses.
Businesses provide goods and services hoping to make a profit. Profit is the money a business has left over after it covers its costs. Businesses try to sell at prices high enough to cover their costs with some profit left over. The higher the price for a good, the more profit a business will make after paying the cost for resources.
Firms need to sell their extra output at a higher price so that they can pay the higher marginal cost of production. Hence, decisions to supply are largely determined by the marginal cost of production. The supply curve slopes upward, reflecting the higher price needed to cover the higher marginal cost of production. The higher marginal cost arises because of diminishing marginal returns to the variable factors.
2.3 CHANGES IN SUPPLY
Unlike the demand relationship, however, the supply relationship is a factor of time. Time is important to supply because suppliers must, but cannot always, react quickly to a change in demand or price. So it is important to try and determine whether a price change that is caused by demand will be temporary or permanent.
Change in the quantity supplied due to a price change occurs ALONG the supply curve.
Supply Curves can also shift in response to the following factors:
Subsidies and taxes: government subsides encourage production, while taxes discourage production
Technology: improvements in production increase ability of firms to supply
Other goods: businesses consider the price of goods they could be producing
Number of sellers: how many firms are in the market
Expectations: businesses consider future prices and economic conditions
Resource costs: cost to purchase factors of production will influence business decisions
STONER: factors that shift the supply curve.
3 MARKET EQUILIBRIUM
Markets bring buyers and sellers together. The forces of supply and demand work together in markets to establish prices. In our economy, prices form the basis of economic decisions.
When supply and demand are equal (i.e. when the supply function and demand function intersect) the economy is said to be at equilibrium. At this point, the allocation of goods is at its most efficient because the amount of goods being supplied is exactly the same as the amount of goods being demanded. Thus, everyone (individuals, firms, or countries) is satisfied with the current economic condition. At the given price, suppliers are selling all the goods that they have produced and consumers are getting all the goods that they are demanding.
 
As you can see on the chart, equilibrium occurs at the intersection of the demand and supply curve, which indicates no allocative inefficiency. At this point, the price of the goods will be P* and the quantity will be Q*. These figures are referred to as equilibrium price and quantity.
In the real market place equilibrium can only ever be reached in theory, so the prices of goods and services are constantly changing in relation to fluctuations in demand and supply.
Supply and Demand Schedule can be combined into one chart.
Price per Widget ($)
Quantity Demanded of Widget per day
Quantity Supplied of Widget per day
$5
2
10
$4
4
8
$3
6
6
$2
8
4
$1
10
2
When operating without restriction, our market economy eliminates shortages and surpluses.
Over time, a surplus forces the price down and a shortage forces the price up until supply and demand are balanced.
The point where they achieve balance is the equilibrium price. At this price, neither a surplus nor a shortage exists.
Once the market price reaches equilibrium, it tends to stay there until either supply or demand changes. When that happens, a temporary surplus or shortage occurs until the price adjusts to reach a new equilibrium price.
Consumers and producers react differently to price changes. Higher prices tend to reduce demand while encouraging supply, and lower prices increase demand while discouraging supply.
Economic theory suggests that, in a free market there will be a single price which brings demand and supply into balance, called equilibrium price. Both parties require the scarce resource that the other has and hence there is a considerable incentive to engage in an exchange.
CONCLUSIONS
Supply and demand is perhaps one of the most fundamental concepts of economics and it is the backbone of a market economy. In microeconomics, supply and demand is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers (at current price) will equal the quantity supplied by producers (at current price), resulting in an economic equilibrium for price and quantity.
The four basic laws of supply and demand are:
1. If demand increases (demand curve shifts to the right) and supply remains unchanged, a shortage occurs, leading to a higher equilibrium price.
2. If demand decreases (demand curve shifts to the left) and supply remains unchanged, a surplus occurs, leading to a lower equilibrium price.
3. If demand remains unchanged and supply increases (supply curve shifts to the right), a surplus occurs, leading to a lower equilibrium price.
4. If demand remains unchanged and supply decreases (supply curve shifts to the left), a shortage occurs, leading to a higher equilibrium price.