Demand and Supply
Demand is the quantity of a good that buyers wish to buy at each price1. Other things equal2, at low prices the demanded quantity is higher.
Supply is the quantity of a good that sellers wish to sell at each price. Other things equal, when prices are high, the supplied quantity is high as well.
The market is in equilibrium when the price regulates the quantity supplied by producers and the quantity demanded by consumers. When prices are not so high as the equilibrium price, there is excess demand (shortage) raising the price. At prices above the equilibrium price, there is excess supply (surplus) reducing the price.
There are some factors influencing demand for a good, such as the prices of other goods, consumer incomes and some others.
An increase in the price of a substitute good3 (or a decrease in the price of a complement good4) will at the same time raise the demanded quantity.
As consumer income is increased, demand for a normal good will also increase but demand for an inferior good will decrease. A normal good is a good for which demand increases when incomes rise. An inferior good is a good for which demand falls when incomes rise.
As to supply, some factors are assumed5 as constant. Among them are technology, the input price6, as well as degree of government regulation. An improvement in technology is as important for increasing the supplied quantity of a good as a reduction in input prices.
Government regulates demand and supply, imposing ceiling prices (maximum prices) and floor prices (minimum prices) and adding its own demand to the demand of the private sector.
1. Ответьте на следующие вопросы к тексту.
1. What is demand?
2. What is supply?
3. When is the market in equilibrium?
4. What happens when the prices are not so high as eqiulibrium price or above the equilibrium price?
5. Which factors influence demand?
6. Which factors influence supply?
7. How can governments regulate demand and supply?