Scribd
Upload
292 views

Ae Module 2

The document discusses key economic concepts related to supply and demand including: - The income effect and substitution effect which describe how consumption changes with income levels and alternative product prices. - Supply relates to the total amount of a good available at different price levels, while demand describes a consumer's willingness to purchase a good at various prices. - Movements refer to changes along the supply or demand curves from one price-quantity point to another that do not shift the curves. Shifts occur when quantity changes even when price stays the same, implying a change in the underlying supply or demand relationship. - The law of supply and demand explains the interaction between buyers and sellers that determines market prices and quantities based on balancing

Uploaded by

Janine Balcueva
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
292 views

Ae Module 2

The document discusses key economic concepts related to supply and demand including: - The income effect and substitution effect which describe how consumption changes with income levels and alternative product prices. - Supply relates to the total amount of a good available at different price levels, while demand describes a consumer's willingness to purchase a good at various prices. - Movements refer to changes along the supply or demand curves from one price-quantity point to another that do not shift the curves. Shifts occur when quantity changes even when price stays the same, implying a change in the underlying supply or demand relationship. - The law of supply and demand explains the interaction between buyers and sellers that determines market prices and quantities based on balancing

Uploaded by

Janine Balcueva
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 2

The income effect is 

the change in the consumption of goods based on income.


This means consumers will generally spend more if they experience an increase in
income, and they may spend less if their income drops. 
The substitution effect is the decrease in sales for a product that can be attributed
to consumers switching to cheaper alternatives when its price rises.
Supply is a fundamental economic concept that describes the total amount of a
specific good or service that is available to consumers. Supply can relate to the
amount available at a specific price or the amount available across a range of
prices if displayed on a graph
Demand is an economic principle referring to a consumer's desire to purchase
goods and services and willingness to pay a price for a specific good or service.
Holding all other factors constant, an increase in the price of a good or service will
decrease the quantity demanded, and vice versa.
A movement refers to a change along a curve. On the demand curve, a
movement denotes a change in both price and quantity demanded from one point to
another on the curve. ... Like a movement along the demand curve, a movement
along the supply curve means that the supply relationship remains consistent.
Shifts. Meanwhile, a shift in a demand or supply curve occurs when a good's
quantity demanded or supplied changes even though the price remains the same. ...
Shifts in the demand curve imply that the original demand relationship has
changed, meaning that quantity demand is affected by a factor other than price.

what is a simple explanation of the law of supply and


demand?
The law of supply and demand is a theory that explains the interaction between
the sellers of a resource and the buyers for that resource. The theory defines
the relationship between the price of a given good or product and the willingness
of people to either buy or sell it.
why is the law of supply and demand important
Supply and Demand Determine the Price of Goods and Quantities Produced and
Consumed. ... But if supply decreases, prices may increase. Supply and demand
have an important relationship because together they determine the prices and
quantities of most goods and services available in a given market.
The Law of Supply and Demand is important because it helps investors,
entrepreneurs, and economists to understand and predict conditions in the market.
For example, a company that is launching a new product might deliberately try to
raise the price of their product by increasing consumer demand through
advertising.

At the same time, they might try to further increase their price by deliberately
restricting the number of units they sell, in order to decrease supply. In this
scenario, supply would be minimized while demand would be maximized, leading
a higher price.

You might also like