Demand & Supply of Goods & Services

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The Concept Of Demand And Supply For Goods And Services

Microeconomics

Microeconomics looks into the individual people and firms within the economy. 

The competition also has a key influence on the micro environment.

The 5 M’s refer to inputs that an organisation requires in order to function.  They are:

  1. Materials

  2. Money

  3. Men (human resources)

  4. Machines

  5. Management

Utility

Utility describes the benefit of consuming goods.

  • Total utility is the total benefit people get from spending their income on consuming goods.

  • Marginal utility is the satisfaction gained from consuming one additional unit of a good

Demand for goods and services

Demand is affected by:

  1. Price (of the product)

  2. Price (of other products)

  3. The consumer’s Income

  4. Sociological factors

  5. Tastes

All of the above create what we call a shift in the demand curve

Generally the higher the price the less is demanded. Hence a downward sloping curve (see diagram)

Demand relationship

Supply for goods and services

Supply is affected by:

  1. Price (of the product)

  2. Prices (of factors of production)

  3. The Goals of producing firms

  4. Technology

All of the above create a shift in the supply curve.

Supply is basically what producing firms are willing to supply. They will normally supply more for a higher price (received) Hence the curve is normally upward sloping (see diagram)

Supply relationship

Equilibrium

  • Where demand and supply intersect the economy is said to be at equilibrium.  

    This is the most efficient point/price because supply is exactly matched with demand. So everybody is happy

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