Basically, supply is the amount a product produced by the seller and available to the buyer while demand is the amount of product wanted by the buyer. If demand increases, supply must increase to match that demand. Likewise, if the demand decreases then the supply must decrease accordingly.

If the supply doesn’t increase along with the demand, there is a shortage. In other words, people want more of a product than is being produced. For example, if each person wants 12 fans, but there is only one fan per person being made, then there is a shortage of fans.

If the supply doesn’t decrease along with demand, then there is a surplus. In other words, there is more product being supplied than people want. For example, if people only want 1 VCR, but there are 6 VCR’s being made per person, then there will be far too many VCR’s – there will be a surplus.

As far as price goes, the equilibrium price is the perfect balance of supply and demand. If there is a slight surplus – if more is being supplied than is demanded – then prices will drop. This is because there is extra product, and when a product is readily available like that, it is not worth as much. Hence the price drop.

Similarly, if there is a slight shortage then the prices will increase. This is because it is more difficult to obtain that product, and so the product is worth more money.

This is a rather simplistic explanation of supply and demand, but you can usually answer difficult questions as long as you truly understand the basics. Good luck on your test and remember that supply and demand charts are your friends. They will tell you exactly what happens in different situations.

Unfortunately, I can’t answer your second question. I’ve never heard those terms before. Of course, I took economics, which is probably a bit different than business – you know, more theory and less application.

If the line is shifting over and up to the right the product is increasing in sales (value).

If the line is shifting downwards the product is decreasing in sale (value).

If the demand for the product is high but the inventory of the product is low, the prices of the product will cost more money because of the demand for it. Think of it as gas.

If the supply of the product is plentiful and the demand of the product is low,than the price of the product comes down. Think Wal-Mart. Good Luck…I did this really fast!

People like to drink milk in a town. There are two farms with a few cows. Then somebody makes ice cream. The ice cream is great and everybody wants it. There aren’t enough cows to produce the ice cream. So three more farms open up. The supply will always increase if there is demand. Generally then as supply increases , price decreases, because of competition. -s

as the supply goes down the prices go up.

if the prices go up, demands go down

if demands go down, prices go down

if price goes down, the demand goes up….and it starts all over

just think of it this way…..

you want something, when you buy it, there is less on the shelf (supply goes down)

now that the supply is down….the company raises the price so that less people will buy(because supply is low)

as the price goes higher…less people buy it (price goes up) (supply up-theres more available)

and then if there is more available…more people can buy! (demand goes up)

Thats it!