ABSTRACT
This chapter contains demand and supply Model; the principles on which it is based; underlying assumptions; guidance on application, and relevant issues; and related models. Demand is the quantity of goods that buyers wish to purchase at a stated price. The market is in equilibrium when the price equates quantity demanded with quantity supplied - that is, where demand and supply curves intersect. The demand curve assumes that prices of other goods, incomes and fashions or tastes remain constant. An increase in the price of a substitute or a decrease in the price of a complement raises quantity demanded. A factor that increases supply shifts the supply curve to the right, reducing price but increasing quantity supplied. An effective price ceiling may be set below the market equilibrium price to reduce quantity supplied and create excess demand until, or unless, the government contributes to supply.
