Germaine D.

Casio
3BSA-1
Demand refers to how much (quantity) of a product or service is desired by buyers. The quantity
demanded is the amount of a product people are willing to buy at a certain price; the relationship
between price and quantity demanded is known as the demand relationship.
Supply represents how much the market can offer. The quantity supplied refers to the amount of
a certain good producers are willing to supply when receiving a certain price.
The correlation between price and how much of a good or service is supplied to the market is
known as the supply relationship. Price, therefore, is a reflection of supply and demand.

The demand function relates price and quantity. It tells

be purchased at different prices. In general, at higher
purchased. Thus, the graphical representation of the
(often referred to as the demand curve) has a negative
demand function is calculated by adding up all of the
consumers' demand functions.

how many units of a good will

prices, less will be
demand function
slope. The market
individual

A supply function
models the
relationship between price and quantity with respect
to the manufacturer. Supply curves are also functions
of the quantity q, but are denoted by the name S(q).
Unlike the demand curve which was decreasing, this
curve increases. Lets look at parts of this curve
closer to insure that it makes sense.

Market Equilibrium Point

When the supply and demand curves intersect, the market is in equilibrium. This is where the
quantity demanded and quantity supplied are equal. The corresponding price is the equilibrium
price or market-clearing price, the quantity is the equilibrium quantity.

Government regulations will create surpluses and shortages in the market. When a price ceiling
is set, there will be a shortage. When there is a price floor, there will be a surplus.
Price Floor: is legally imposed minimum price on the market.
Transactions below this price are prohibited.
Policy makers set floor price above the market equilibrium price which they believed is
too low.
Price floors are most often placed on markets for goods that are an important source of
income for the sellers, such as labor market.
Price floor generate surpluses on the market. Example: minimum wage.
Price Ceiling: is legally imposed maximum price on the market.
Transactions above this price are prohibited.
Policy makers set ceiling price below the market equilibrium price which they believed is
too high.
Intention of price ceiling is keeping stuff affordable for poor people.
Price ceiling generates shortages on the market. Example: Rent control.

Break-Even Analysis

An analysis to determine the point at which revenue received equals the costs associated with
receiving the revenue. Break-even analysis calculates what is known as a margin of safety, the
amount that revenues exceed the break-even point. This is the amount that revenues can fall
while still staying above the break-even point.
Break-even analysis is a supply-side analysis; that is, it only analyzes the costs of the sales. It
does not analyze how demand may be affected at different price levels.
For example, if it costs $50 to produce a widget, and there are fixed costs of $1,000, the breakeven point for selling the widgets would be:
If selling for $100: 20 Widgets (Calculated as 1000/(100-50)=20)
If selling for $200: 7 Widgets (Calculated as 1000/(200-50)=6.7)
In this example, if someone sells the product for a higher price, the break-even point will come
faster. What the analysis does not show is that it may be easier to sell 20 widgets at $100 each
than 7 widgets at $200 each. A demand-side analysis would give the seller that information.

References:
http://www.investopedia.com/university/economics/economics3.asp
www.whyseemath.com/pdf212/supply_demand.pdf
http://www.ecosystemvaluation.org/travel_def4.htm
http://staffwww.fullcoll.edu/fchan/Micro/1MKTEQUIL.htm
http://www.investopedia.com/terms/b/breakevenanalysis.asp