Economics Terms A-Z
Supply and Demand
One of the most fundamental tenets of economics. Supply refers to the quantity of a product being produced, and demand the quantity consumers wish to buy. In its most basic form, it refers to the theory that the price for a good or service will eventually settle at a point when its demand and its quantity are equal (assuming all other factors remain equal). This is referred to as the equilibrium.
The demand depends, with all other factors being equal, on the price of the commodity. Of course, all other factors are never equal: other goods in the market, the preferences of consumers, and many other things influence the demand of a good. The demand curve generally slopes shows consumers more willing to buy a product when it is cheaper and less willing when it is more expensive. The quantity of a product is also dependent on many factors: how much it costs to make the product, how much substitutes cost in the market, what technology is available, and numerous other things.
The theory is used to help businesses define how they price their goods. The theory assumes that consumers have the power to influence the price of a good, in that they increase its price if they buy more and make its price decrease when they decide to buy less. As the price increases, consumers are also less likely to purchase the product, and as it becomes cheaper, they are more likely to buy. However, these responses are not necessarily proportional, and this is where elasticity comes into play.
A deadweight loss is the irrecoverable reduction in economic efficiency that occurs when a free-market equilibrium is disturbed by a market intervention or other shock to supply and/or demand. In economic theory, free markets are beneficial to society because they allow consumers and producers to exchange goods and services for money and both sides of the market gain at the equilibrium price in terms of consumer surplus and producer surplus. In a simple economy with just one
Supply and Demand for New Ph.D.s in Economics
Source: Survey of the labor market for new PH.D. hires in economics 2011 – 12, Sam M. Walton College of Business, University of Arkansas: 179 of the institutions responding to the current survey are expecting to hire 172 new Ph.D.s for the 2011-12 academic year. The greatest demand is for the field of macro/monetary economics at 14.8 percent, followed by general economics at 12.2 percent, and microeconomics at 10.8 percent …
A market is in equilibrium if at the market price the quantity demanded is equal to the quantity supplied. The price at which the quantity demanded is equal to the quantity supplied is called the equilibrium price or market clearing price and the corresponding quantity is the equilibrium quantity.