The basic concept
There are two terms that describe how much of a particular product or service there is: demand and supply. If demand exceeds supply, prices will increase because people want what they can't have. If supplies exceed demands, prices decrease because more goods are available than people want. To an economist, every good or service can be understood as a combination of two things: how much of it is being sold, known as its quantity, and how much you have to pay for it, its price.
Demand vs. Quantity Demanded
There are three factors that determine how much of a good or service people will buy at a given price. First, people buy more as prices fall (demand increases); second, people buy less as prices rise (demand decreases). The third factor is simply that not everyone has enough money to pay for all of their wants. For example, when people talk about the demand for cars they mean how many would be purchased if every one of those who wanted one had enough money to buy it.
Supply vs. Quantity Supplied
The Quantity Supplied is a schedule showing how much of a product producers are willing to sell at various prices over time. Sometimes, we also refer to QS as Supply. However, don't confuse QS with an area on a graph because it is not. Rather, QS is expressed by an equation: dQ/dP = - P * S where P is price, S stands for Supply, dQ/dP is negative because when P goes up, Quantity Supplied (Supply) goes down. More info... Demand vs. Quantity Demanded: The Quantity Demanded is a schedule showing how much of a product consumers will buy at various prices over time.
Demand Curve
A demand curve is a graph that describes how many goods consumers are willing to buy at each price. The x-axis shows prices of goods, while y-axis shows number of goods bought. Consumers will generally purchase more goods at lower prices and fewer goods at higher prices. If a consumer has a budget of $100, they may not purchase any good if it costs more than $100. A downward sloping curve indicates an inverse relationship between price and quantity demanded. An upward sloping curve indicates a direct relationship between price and quantity demanded.
Supply Curve
The horizontal axis measures quantity, while price is on a vertical axis. The curve itself shows where quantity supplied (QS) intersects with price. This means that at $0.00, suppliers are willing to produce zero units. It also means that as price rises above $0.00, they are willing to produce more units—up until they reach their point of marginal cost (PMC). After that, it costs more for producers to make each additional unit. Similarly, there’s a point at which suppliers decide they won’t sell any more product for less than $0.01 per unit—the lowest rate of return available at current levels of production—so that price is marked on their curves as well.
PED & PSD for Supply Analysis
PED and PSD are two different ratios that analysts use when they’re performing a supply analysis. It is impossible to determine precisely what PSD stands for; however, it is generally accepted that it is an acronym for something along the lines of Profitability, Sales, or Dividends. PED (or Peak Earnings) on the other hand, seems relatively straightforward: it is simply a company’s peak EPS multiplied by a particular number of years. Basically speaking, if you have either PSD or PED, then you have enough information to perform an accurate estimation of future stock prices using one of several methods outlined below...
A--Determinants of Demand/Supply (Examples)
The first thing you have to understand is that there are a lot of determinants that influence both sides of any supply/demand equation. It’s not just a simple question of whether there is excess supply or excess demand—it can be influenced by factors like weather, seasonality, interest rates, time of year, etc. In fact, it’s almost impossible to say for certain what will happen with supply and demand over an extended period without taking all these factors into account.
B--Market Equilibrium Point
In an economic system where there are many buyers and sellers, prices fluctuate. In a competitive environment, prices should settle at their equilibrium point. This happens when price is neither too high nor too low; it’s optimal for all parties involved. If a seller charges more than what someone will pay for a product, then that excess money goes unused because no one bought it. Similarly, if an item costs less than what others are willing to pay for it, then whoever is selling the product is losing out on profits they could have made otherwise.
C--Excess Demand/Supply & Reasons Thereof
Excess Demand is when a product or service has so much interest that sellers can't keep up with buyer demand. For example, if there are more buyers than there are units for sale, then you have excess demand. It's common for popular stocks to experience these types of events; during IPOs, for example, there are only so many shares available to purchase on a given day, meaning people looking to buy usually aren't able to get in on that offering. However, after they go public and shares begin trading freely as open-market orders, you will see excess supply.
D--Causes of Shift in Demand/Supply Curve
There are many factors which may cause shift in both demand curve and supply curve. Some of them are as follows:
1.Changes in Income: There is a change in income of consumers, then there will be a fall or rise of consumption of product. It is also directly related with quantity demanded or supplied.
2. Changes In Expectation: If expectation of consumers increase, they will consume more product because they feel that price will fall so they want to purchase now for future consumption.
3. Change in Tastes/Preferences: Change in tastes and preferences will affect quantity demanded or supplied.
4.Change in Number of Buyers/Sellers: Increase or decrease in number of buyers and sellers, it affects quantity demanded or supplied.
5. Government Policies: Change in government policies like increase/decrease tax rate on products it will affect both demand and supply curve.
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