Second lecture

Supply and Demand

"Supply and demand are the most fundamental tools of economic analysis. Most applications of economic reasoning involve supply and demand in one form or another. When prices for home heating oil rise in the winter, usually the reason is that the weather is colder than normal and as a result, demand is higher than usual. Similarly, a break in an oil pipeline creates a short-lived gasoline shortage, as occurred in the Midwest in the year 2000, which is a reduction in supply. The price of DRAM, or dynamic random access memory, used in personal computers falls when new manufacturing facilities begin production, increasing the supply of memory."

(From chapter 2 in Introduction to Economic Analysis by R. Preston McAfee)

Market theory

A supply (red) and demand (blue) curve. The point at which the red and blue lines cross is the equilibrium price.

Supply, Demand, & Elasticity

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Increase in demand

This supply and demand model shows how prices vary because of a balance between the availability of a product and the demand for it. The graph shows an increase in demand from D1 to D2 with the resulting increase in price and the amount needed to reach a new balance point on the supply curve (S).

Terms related to supply and demand

Terms to develop in production and consumer economics