Supply and Demand

Question 1

What is demand?

Answer 1

Demand is an economic principle that describes a consumer’s desire and willingness to pay a price for a specific good or service

Question 2

What is supply?

Answer 2

Supply is the quantity of a product that a producer is willing and able to supply onto the market at a given price in a given time period.

Question 3

Why is the demand curve traditionally downward sloping?

Answer 3

Consumption of one unit of a good negatively impacts the utility derived from consuming the next unit of the good. This means that the value consumers place on a good falls as their consumption of it increases.

Another reason is due to the opportunity cost of the consumption of a good or service falling as the price falls. This means that existing consumers will buy more units of the good. Also, new consumers enter market who either could not afford the good before, or switch away from relatively more expensive alternatives.