### 날짜 : 2024-03-23 14:24 ### 주제 : Market Demand, Supply, and Equilibrium #economics ---- ### 3.1 Market Demand, Supply, and Equilibrium #### **Market Demand and Supply** Market demand and supply are fundamental concepts in microeconomics that describe the behaviors of consumers and producers. - **Demand** refers to the quantity of a good or service that consumers are willing and able to purchase at various prices during a specific time period. The demand curve typically slopes downwards, reflecting the law of demand: as the price decreases, the quantity demanded generally increases, all else being equal. :max_bytes(150000):strip_icc()/demand_curve2-1a87890730a044e79de897ddb61ccc76.PNG) - **Supply** signifies the quantity of a good or service that producers are willing and able to offer for sale at various prices over a given time frame. The supply curve typically slopes upwards because as the price of the good increases, producers are willing to supply more of it to the market, all else being equal. :max_bytes(150000):strip_icc()/supply_curve_final-465c4c4a89504d0faeaa85485b237109.png) Demand and supply curves are graphical representations that reflect the respective laws of demand and supply. #### **Market Equilibrium** - Equilibrium in a market is reached where the quantity demanded of a good or service at a particular price is equal to the quantity supplied at that price. At this point, the market is said to 'clear', and there is no tendency for the price to change.  - The equilibrium price, often referred to as the market-clearing price, is where the demand for a good equals the supply. Here, the intentions of buyers and sellers match, and the amount of the good buyers want to buy is equal to the amount sellers want to sell. #### **Shifts in Demand and Supply** - The demand and supply curves can shift for various reasons other than price changes. These include changes in consumers' incomes, tastes, and prices of related goods for demand, and changes in production cost, technology, and expectations of future prices for supply. - When the demand curve shifts, it results in a new equilibrium price and quantity. A shift to the right (increase in demand, all else being equal) tends to raise the equilibrium price and quantity. Conversely, a shift to the left (decrease in demand) tends to lower the equilibrium price and quantity. - A rightward supply shift (increase in supply) typically lowers the equilibrium price but increases the equilibrium quantity, assuming demand stays constant. A leftward shift (decrease in supply) typically raises the equilibrium price and lowers the equilibrium quantity. - Shifts in demand and supply curves are central concepts in economics that indicate changes in market conditions. These shifts represent changes in the market that cause consumers to buy different quantities at every price, or that cause producers to sell different quantities at every price. ##### Shifts in Demand A demand curve shifts when a non-price determinant of demand changes. This means something other than the price of the good itself causes consumers to buy more or less of the good. Here are several factors that can shift the demand curve: - **Income**: As consumers' income changes, their ability to buy goods can increase or decrease. For normal goods, an increase in income will shift the demand curve to the right, indicating higher demand at all prices. For inferior goods, an increase in income would shift the demand curve to the left, as consumers now opt for more premium substitutes. - **Consumer Preferences**: Changes in tastes and preferences can increase demand for one product while decreasing demand for another. For example, if there's a new health study that indicates the benefits of blueberries, demand might increase, shifting the curve to the right. - **Price of Related Goods**: This includes complementary goods and substitutes. If the price of a complement, like tennis balls, increases, the demand for related goods, such as tennis rackets, is likely to decrease, shifting its demand curve to the left. Conversely, if the price of a substitute, like squash balls, rises, the demand for tennis balls can increase, shifting their demand curve to the right. - **Expectations about Future Prices or Income**: If consumers expect prices to rise in the future, they may buy more now, shifting the current demand curve to the right. Similarly, if they expect their income to rise or fall in the future, that can also shift the demand curve. - **Population and Demographics**: A growing population increases demand for most goods, shifting demand curves to the right. Meanwhile, aging of the population, for instance, might increase the demand for healthcare services. - **Government Policy and Regulation**: Laws can alter consumer behavior. For example, regulations that restrict cigarette sales could decrease their demand, shifting the curve to the left. ##### Shifts in Supply A supply curve shifts when a non-price determinant of supply changes. Thus, something other than the price of the good itself leads to a change in the quantity of the good that producers are willing and able to sell. Factors affecting supply include: - **Production Costs**: If the cost of production falls, perhaps due to a decrease in material costs or advances in technology, producers can supply more at every price, shifting the supply curve to the right. - **Changes in Technology**: Better technology can make production more efficient, increasing supply at all price levels, thereby shifting the curve to the right. - **Number of Sellers**: An increase in the number of sellers in the market usually increases the quantity of a good supplied at every price, shifting the supply curve to the right. - **Expectations of Future Prices**: If producers expect a higher price for their goods in the near future, they may decrease current supply to sell more later, shifting the current supply curve to the left. - **Taxes and Subsidies**: Increased taxes on the production of goods can decrease supply, shifting the curve to the left. Conversely, subsidies can increase supply, shifting the curve to the right. - **Regulations**: Increased regulations can add to the cost of production, reducing supply and shifting the curve to the left. When these factors change, they cause the whole curve to shift left or right. A shift in a demand or supply curve necessarily means that the original demand relationship has changed, meaning that quantity demanded or supplied has changed at every possible price. Thus, shifts in demand and supply are not the same as movements along demand or supply curves, which are only caused by price changes for the good or service. #### Examples of Market Demand, Supply, and Equilibrium - **Coffee Market**: Suppose new research suggests that coffee has substantial health benefits. This news might increase the demand for coffee, shifting the demand curve to the right. If the supply of coffee remains unchanged, the equilibrium price and quantity of coffee will rise. - **Housing Market**: Consider a scenario where building costs decrease due to cheaper materials and new technology. The supply curve for housing shifts right, leading to a reduction in the equilibrium price of houses and an increase in the number of houses built and sold, assuming the demand for houses remains constant. - **Technology Products**: The release of a new smartphone model with advanced features can shift the demand curve to the right due to increased consumer interest. If the smartphone manufacturers are unable to meet this higher demand due to production constraints, the equilibrium price will rise until supply can catch up with demand.  ### Applying the Concept Understanding how markets reach equilibrium and the factors affecting demand and supply help economists and stakeholders: - Predict changes in the market and make informed decisions. - Analyze the potential impacts of external shocks, such as policy changes, global events, or technological advancements. - Empower businesses and policymakers to adjust supply, modify prices, or implement policies to achieve desired economic outcomes.