Charina Alim

AC1621-A
Macroeconomics

1. Demand
Definition: the quantity of a commodity or a service that people are willing or able to buy at a
certain price. The relationship between price and quantity demanded is also known as demand
curve.
Determinants:
1. Consumer preferences: personality characteristics, occupation, age, advertising, and product
quality, all are key factors affecting consumer behavior and, therefore, demand.
2. Prices of related products: an increase in the price of one product will cause a decrease in the
quantity demanded of a complementary product. In contrast, an increase in the price of one
product will cause an increase in the demand for a substitute product.
3. Consumer income: the higher the consumer income, the higher the demand and vice versa.
4. Consumer expectations: expectations for a higher income or higher prices increase the
quantity demanded. Expectations for a lower income or lower prices decrease the quantity
demanded.
5. The number of buyers: the higher the number of buyers, the higher the quantity demanded,
and vice versa.
6. Other factors: the weather and governmental policies that may expand or contract the
economy affect the demand for particular products or services.
2. Supply
Definition: The total amount of a product (good or service) available for purchase at any
specified price.
Determinants:
When price changes, quantity supplied will change. That is a movement along the same supply
curve. When factors other than price changes, supply curve will shift. Here are some
determinants of the supply curve.
1. Production cost:
Since most private companies’ goal is profit maximization. Higher production cost will lower
profit, thus hinder supply. Factors affecting production cost are: input prices, wage rate,
government regulation and taxes, etc.
2. Technology:
Technological improvements help reduce production cost and increase profit, thus stimulate
higher supply.
3. Number of sellers:
More sellers in the market increase the market supply.
4. Expectation for future prices:
If producers expect future price to be higher, they will try to hold on to their inventories and
offer the products to the buyers in the future, thus they can capture the higher price.