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Supply and Demand Economics

Supply and demand economics can be used to identify the market equilibrium. The demand curve is a depiction of price plotted against the quantity (volume) sold at that price for a given product. The supply curve presents the quantity of goods supplied at each price.

Demand Curve Shifts

Shifts in the demand curve can have many possible causes.

Possible causes for increase in demand

Possible causes of a decrease in demand

Supply Curve Shifts

Shifts in the supply curve can be caused by changes in the following factors.

Methodology

  1. Construct the demand curve. Forecast demand by segment at various price levels. Determine the factors that shape the demand curve. Calculate the elasticity of demand and how it varies along different parts of the curve.
  2. Construct the supply curve. Identify units of capacity and order them from lowest to highest cost producers. Determine the factors that shape the supply curve. Calculate the elasticity of supply and how it varies along different parts of the curve.
  3. Determine the industry impact of supply/demand interaction. Determine how the industry dynamics operate: scale, scope, and learning. Determine the most important measure of cost to industry producers: marginal cost, long-run total cost, non-sunk cost.

Notes

Strengths

Weaknesses