Introducing Supply and Demand
Changes in Demand and Supply and Impacts on Equilibrium
LEARNING OBJECTIVES
Illustrate how changes in supply or demand impact the market equilibrium
KEY TAKEAWAYS
Key Points
- The interdependent relationship between the supply of a given product or service and the overall demand exercised by interested parties generates a theoretical equilibrium point, dictating the average market price and purchase volume relative to that price.
- Markets are in constant flux as demands and supplies are subjected to varying driving forces and influences. These shifts play a critical role, altering market equilibrium price points and volumes for products and services.
- Demand shifts can be caused by a wide variety of factors, but largely revolve around drivers of consumer behavior and circumstances.
- Supply shifts, similar to demand shifts, can ultimately be a result of a wide variety of externalities. Scarcity, or the lack of availability for a particular material, is a core driving force for overall supply.
- Due to a demand curve 's sloping downward and a supply curve 's sloping upwards, the curves will eventually cross at some point on any supply/demand chart. This point of equilibrium serves as a price and quantity tracking point.
Key Terms
- scarcity: An insufficiency or lack of availability; a shortage.
- equilibrium: A condition in which competing forces are in balance.
The interdependent relationship between the supply of a given product or service and the overall demand exercised by interested parties generates a theoretical equilibrium point, dictating the average market price and purchased volume relative to that price. In a static market it would be reasonable to assume that prices and volumes would remain fairly predictable and consistent relative to the population, but realistic markets are not static. Instead, markets are in constant flux as demands and supplies are subjected to varying driving forces and influences. These shifts play a critical role in altering market equilibrium price points and volumes for products and services, requiring constant vigilance and adaptation by providers and consumers. To better understand market variations, it is useful to examine how changes in supply and demand may occur, as well as the impacts and implications of these changes.