Transcript Document

When Supply Meets Demand
“Teach a parrot the terms ‘supply and demand’
and you’ve got an economist.”
Thomas Carlyle
Name
MM 212 – section xx
Date
One of the key concepts in the development of a business model is the
price at which supply is equal to demand.
The point at which demand is equal to supply is called “equilibrium.”
When we are producing and selling a product, it is important to know the ideal
price we should charge so that the supply we provide will be in balance with
the demand of the public.
The price at which this occurs is determined by two related concepts: The Law
of Supply and the Law of Demand.
The Law of Supply states that as the price of a good rises, its quantity
supplied will rise, and vice versa.
The Law of Demand states that as the price of a good rises, its quantity
demanded will fall, and vice versa.
An example:
Suppose that a family wants to sell cupcakes to raise money. Knowing that as
price increases the demand for the cupcakes falls, and that increasing prices
motivate them to make more cupcakes, there will be a point where the supply
and demand meet one another!
Assume that at a given price x, in dollars, an individual customer will be willing
to purchase a particular quantity, y, of cupcakes.
If we graph the two related concepts, supply and demand, on one plane, with
price being on the horizontal axis and quantity of cupcakes on the vertical axis,
we can visualize the situation.
The price at which supply and demand are equal can be found by graphing
the supply and demand curves on the same plane. We can see that the
intersection appears to be at the point (4,5), which tells us that at a price of
$4 per cupcake, the public will demand 5 cupcakes per sale, and we will
provide 5 cupcakes per sale, and the situation will be “in balance.”
Resources
Yeager, Tim. (1996-2007) OnLineTexts.com, Introduction
to Macroeconomics,
http://www.econweb.com/MacroWelcome/sandd/notes.ht
ml#2