Supply And Demand Essay, Research Paper
Market demand is best defined as each consumer s demand for a particular product, or each firm s demand for a particular factor. The law of demand specifies that the amount demanded varies inversely with price . The following diagram can best demonstrate this. The table shows the maximum rate of purchase. That is, where the price is $40, consumers will buy 200 units and no more.
Price $ Quantity Demanded
20 240
40 200
60 160
80 120
100 80
120 40
The demand curve can be used to give a graphical representation of the above data.
Movement along the demand curve is caused only by a change in price. An Increase in price results in a move upward in the demand curve. This is known a contraction in demand (or a decrease in the quantity demanded). Conversely, if the price falls, then there is an expansion in demand (or an increase in the quantity demanded).
Some conditions result in a shift of the curve itself (or in this case line). It is important to understand that unlike a movement along the demand curve, this change as nothing to do with price, and in fact has a number of contributing factors. A shift to the right of the original curve represents an increase in demand, and a shift to the left, represents a decrease in demand. An increase in demand means that consumers are more willing and able to purchase a given quantity of the product in question at the same price.
Possible reasons for increase in demand
+ Increased income levels
+ Higher price of substitutes (e.g. Chocolate and Carob)
+ Expected future price rises (consumer expectation causes increase)
+ Changes in fashion, preference and taste
+ Increase in population
A decrease in demand means that consumers are less willing and less able to purchase a given quantity of the good at the original price. It also means that consumers are able to buy a given quantity at a lower price than before.
Possible reasons for a decrease in demand
+ Decreased income levels
+ Lower price of substitutes
+ Expected future price falls (consumer expectation causes decrease)
+ Changes in fashion, preference and taste
+ Decrease in population
Market Supply is defined as the quantity of goods and services that an industry is willing and able to offer the market at different price levels at a given point in time. The laws of supply state that producers will supply more of a product at a higher price and less at a lower price .
Price $ Quantity Supplied
120 240
100 200
80 160
60 120
40 80
20 40
The supply curve can show the above information graphically.
Like the demand curve, movement along the supply curve is only caused by a change in price. If the price rises, then so does supply, and if the price falls, supply does too. These movements are known as expansions and contractions in supply.
Like the demand curve, certain circumstances cause the curve to shift. An increase in supply is represented by the curve shifting to the right as shown below.
Factors leading to this increase in supply may include:
+ Improvement in technology
+ Fall in the cost of factors of production (land, labour, capital)
+ Increase in availability of the factors of production
+ More favourable seasonal conditions (fresh produce etc.)
+ Fall in the cost of other goods resulting in them being less profitable to produce and resources being shifted to production of good in question as it is more profitable
A decrease in supply has the opposite effect. The supply curve moves to the left as shown below.
Factors leading to this decrease in supply may include:
+ Increase in the cost of factors of production (land, labour, capital)
+ Decrease in availability of the factors of production
+ Less favourable seasonal conditions (fresh produce etc.)
+ Increase in the cost of other goods resulting in them being more profitable to produce and resources being shifted to production of these goods and taken away from the good in question.
+ Regulations restricting the supply of the good in question (quotas on imports etc.)
If we combine Demand and Supply, we are given a good model of the price mechanism. The price mechanism is the fundamental determinant that governs the price at which commodities will be sold in a perfect market, but because no market is free from some form of intervention, it is not totally accurate.
By using this supply and demand model, we are shown market equilibrium. This is the point where at a certain price level, supply and demand are equal. If market equilibrium is not met, then there will be an excess of supply and a shortage of demand or vice versa.
If the price is above the equilibrium, then there will be an excess of supply and a shortage of demand. This is due to the laws of supply and demand as described before. As the price is high, there is more profit to be made in the production of the good. However, with the high price, consumers are less willing and able to purchase the product. To counter this excess supply, producers must lower the price and thereby raise the demand to meet supply. As a result, equilibrium is met.
If the price is below the equilibrium price, then there is an excess of demand. This will be rectified by competition between buyers pushing the price up, resulting in an increase of supply and a contraction in demand until the equilibrium price is met.
If we apply the previous theories of increases and decreases in demand and supply to this model that encompasses both supply and demand, we can gain further insight into how markets work.
An increase in demand creates excess in demand at the previous equilibrium price. The price will be forced up causing an expansion in supply until the new equilibrium is reached at P1. An increase in demand raises both equilibrium price and quantity.
A decrease in demand creates excess in supply and the previous equilibrium price (P1). The price will be forced down causing a contraction in supply until equilibrium is reached at e. As demand falls, so will equilibrium price and quantity.
Другие работы по теме:
Law Of Demand Essay Research Paper There
Law Of Demand Essay, Research Paper There are many different products that are in demand for teenagers today. Normally at different times there are different products that are high
Housing Problem Essay Research Paper Many economists
Housing Problem Essay, Research Paper Many economists argue that market solutions are more efficient than government agencies in providing services even when it comes to ?merit goods?. In the discussion of housing problem, I would disagree with the economist?s view. Housing is a very complicate issue that I believe it will work the best by the cooperation of market and government agencies.
Kate Chopin 2 Essay Research Paper Adam
Kate Chopin 2 Essay, Research Paper Adam Smith, Thomas Malthus, and David Ricardo are classical economists whose discoveries in the late eighteenth and early nineteenth century made a great impact on economics to this day.
Organ Sales Essay Research Paper Since 1984
Organ Sales Essay, Research Paper Since 1984, the buying and selling of human organs has been illegal in the United States. This prohibition on organ markets is very controversial. In the future it may not be the problem that it is today because of advances in the field of medicine. Unfortunately, right now there is an increasing scarcity of organs, and the waiting lists for livers, hearts, and other such organs get longer everyday.
Great Depression Essay Research Paper Explain the
Great Depression Essay, Research Paper Explain the underlying and immediate causes of the Great Depression. The causes of the Great Depression are all important and mostly interrelated. The distribution of wealth was far outbalanced as much more money was acquired by the rich. Oversupply and the inability of consumers to buy products caused several more problems.
Untitled Essay Research Paper In today
Untitled Essay, Research Paper In today’s modernized world, there seem to be several luxuries that we can not live without. In a large metropolitan area such as Los Angeles, cars and the gas that fuels the cars are a must. So what would happen when the number one and number two oil companies in the United States decided to merge together?The deal itself would be worth 75.3 billion dollars, making the new Exxon Mobil one of only two major fuel providers along with Royal Dutch/Shell until the merger between British Petroleum and Amoco Corp. is approved.
Anaylsis Paper Essay Research Paper Analysis Paper
Anaylsis Paper Essay, Research Paper Analysis Paper 1 The EIA predicted Midwestern Illinois families to be spending as much as 40% more on heating this year compared to last year because of higher natural gas prices. The increase in price is largely due to the reduction of natural gas supplied.
Ripple Effects Upon Economy Essay Research Paper
There are several things that can cause a ripple effect in our economy. There are economic facts, or things that will happen no matter what, that start to affect more and more people, until they sooner or later effect everybody. The
SupplyDemand And The Theories Of Location Essay
, Research Paper Economic theories of supply and demand provide a clear indication of the effectiveness of free markets in the allocation of land resources. Changes in the costs associated with accessibility have resulted in a free market move of population away from traditional city centres.
Financial Article Essay Research Paper Goldman Sachs
Financial Article Essay, Research Paper Goldman Sachs is the last big Wall Street investment bank to go public. In this story they are explaining how is the timing of its IPO (Initial Public Offering) going to be affected by the market at this moment. The market at this moment is very volatile. Some people think that the market is too high and that a correction is in our way very soon.
America Online Essay Research Paper America Online
America Online Essay, Research Paper America Online To Unveil Flat Fee For Internet Access The Internet is becoming more popular and more widely used, and the Market for internet access is growing rapidly. To stay
The Internet Market In Kuwait Essay Research
Paper Many competitive markets have been appeared in Middle East lately, and specially in Kuwait. The One which I will discuss is the Internet competitive market in Kuwait . Internet has been a great demand in all over the world. In 1992, The ministry of communication in Kuwait provided the internet service.
Explain What Is Meant By The Term
An Economic Model Essay, Research Paper Explain what is meant by the term an economic model and outline a model of price and output determination in a free market. Examine the effect of a change in real disposable income on equilibrium price and output.
Marketing Consumer Behavior Essay Research Paper 1
Marketing Consumer Behavior Essay, Research Paper 1. (a) The types of market segments currently existing for the Hummer in the consumer market are generally men with household incomes varying between 200 and 300 thousand dollars per year. Most of these men already own two or three cars. More doctors will purchase Hummers than lawyers.
3 Questions In Economics Essay Research Paper
1. Would the US economy be better off without government intervention in agriculture? Who would benefit? Who would lose? 2. Are large price movements inevitable in agricultural markets? What other mechanisms might be used to limit such movements?
NAFTA Essay Research Paper If NAFTA made
NAFTA Essay, Research Paper If NAFTA made this agreement, people would be able to move about Canada, the United States, and Mexico with ease. The unskilled workers in Mexico would migrate to “El Norte,” looking for higher paying jobs. The supply of workers in Mexico will drastically decrease. Only the terminally ignorant, or those with families in Mexico, would stay in a poor country and earn low wages.
What Is Economics Essay Research Paper Many
What Is Economics? Essay, Research Paper Many people think that economics is about money. Well, to some extent this true. Economics has a lot to do with money: with how much money people are paid; how much they spend: what it costs to buy various items; how much money firms earn; how much money there is in total in the economy.
Ecoftm Essay Research Paper EconomicsQuestion The most
Ecoftm Essay, Research Paper EconomicsQuestion: The most important contribution of the agricultural sector is to provideincremental markets for new products manufactured in the industrial sector. Answer: Thecontribution of the agricultural sector not only provide incremental markets for newproducts manufactured in the industrial sector, it also has contribution on increasing thesupply of food and new material to other sectors, tax revenue to the government to provide”investable surplus” to other expending sectors and to provide foreign exchange.
How Are Automatic Stabilizers Used To Combat
Inflation Essay, Research Paper How are Automatic Stabilizers Used to Combat Inflation? In today?s economy, there are devices present called automatic stabilizers. Automatic stabilizers, are mechanisms which aid in the correction of an economic problem without the interference of anyone or anything.
Windmere Corp Essay Research Paper WINDMERE CORPORATIONWhat
Windmere Corp Essay, Research Paper WINDMERE CORPORATION What do you recommend that Windmere do over the next two or three years? In my opinion, Windmere must continue to expand its U.S. sales to continue using its factories in China effectively in 2-3 years time. It has focused on a developing a family of brand names in addition to private branding and OEM business , as well as developing additional product lines to push through its distribution channels.
Senior Sim Essay Research Paper Before start
Senior Sim Essay, Research Paper Before start playing the game and building up my corporation I have developed a strategic plan and I have set specific and attainable goals. My target was the maximization of profits in the long run and at the same time the satisfaction of customer needs. My target groups would be the entire market, including all the market customers even of different age, genre, sex, status, income, preferences because I am going to sell products which are consumed every day.
Economic Report Essay Research Paper Demand In
Economic Report Essay, Research Paper Demand In economics, we need to use terms a little more carefully than they are sometimes used in ordinary discussions. In general use, “Demand” is a word that can have more than one meaning, but in microeconomics we define it more carefully so that it has only one meaning.
OPEC
– Supply And Demand Essay, Research Paper Lora Tomasello 7 / 17 / 00 Essay 1 The supply and demand issues dealing with the OPEC are that we are in great need of gasoline in the United States, since gas prices have soared in the past year. Saudi Arabia has a vast supply of stored oil. However, in the article it states that the Saudis cannot afford to appear as America?s lackeys.
SupplySide Economics Essay Research Paper SupplySide EconomicsEssay
Supply-Side Economics Essay, Research Paper Supply-Side Economics Essay Question Supply-Side economics and policies would best benefit the economy in the case of a recession in the year 2000. Supply-side policies are made of several important points to regulate the economy. Supply-side policies consist of stimulating the economy by production, cutting taxes, and limiting government regulations to increase incentives for businesses and individuals.
Heilbroner
’s Worldly Philosphers Essay, Research Paper 1. People looking to trade in their old car for money off of their new car become discouraged with the low trade in value, and decide either not to buy a new car at all or to buy a cheaper model. The lower car sales is a reduction in demand, because the decrease in resale value of used cars is not changing the prices of the new cars, as a change in quantity demanded would suggest, it is changing what people are willing to pay for the cars.
Econ Essay Research Paper Moneycommodity money Fiat
Econ Essay, Research Paper Money-commodity money, Fiat. Money supply=currency in hands of public+other assetsas means of payment (demand deposits, traverler’s checks, savings accounts, time deposits, mutual funds)
Supply And Demand In The Gasoline Market
Essay, Research Paper Supply and Demand in the Gasoline Market The substance known, as gasoline is a mixture of lighter liquid hydrocarbons used chiefly as a fuel for internal-combustion engines. It is produced by the