Hello Ms. Teetaert and fellow classmates.
Last week in class, we talked about supply and demand.
Supply and demand is an economic model of price determination in the market. Demands made by the consumers will equal the quantity supplied by the producers, which will result in an economic equilibrium ( is when the quantity demanded is equal to the quantity supplied) for the price and quantity. Consumer demands always fluctuates, so does the price. There are various factors that affects the demand;
- Price
- Change in price of substitute products
- Change in price of complementary products
- Income
- Tastes and Preferences
- Expectations of future prices
- Number and characteristics of buyers
- Expectation of future incomes
When the price changes base on these factors, the consumers may respond in different ways. When the price increases, less of the product will be purchased at the current level od income. Consumers may substitute towards a relatively cheaper product. The opposite relationship between the price and quantity demanded is referred to as the law of downward sloping demand. When the price is lower consumers will buy more of the product, and less if the price is higher. The inverse relationship between price and demand, is that when on rises, the other falls.
Demand is the consumer side, and Supply is the producer's side. The producers represents the quantity of goods and services that are provided to the market. The supply side constantly changes as the number and variety of products that are made available to the consumers increases. Some factors affecting the supply side;
- Price
- Production cost
- Technological change
- Government regulations
- Weather conditions
Suppliers may respond to the price change in various ways. A higher price must be acquired in order for the quantity supplied to increases. Additional cost of supplying more to the market may increase beyond a certain level. The positive relationship between price and quantity supplied is referred to as the law of upward sloping supply. This means that if the quantity supplied for a good increases, the price will also increase.
There are four basic laws of supply and demand:
- If demand increases (demand curve shifts to the right) and supply remains unchanged, a shortage occurs, leading to a higher equilibrium price.
- If demand decreases (demand curve shifts to the left) and supply remains unchanged, a surplus occurs, leading to a lower equilibrium price.
- If demand remains unchanged and supply increases (supply curve shifts to the right), a surplus occurs, leading to a lower equilibrium price.
- If demand remains unchanged and supply decreases (supply curve shifts to the left), a shortage occurs, leading to a higher equilibrium price.
Work Cited
Merritt, Cam. "What Is a Demand Curve That Is Downward Sloping?" Small Business. Demand Media, n.d. Web. 02 Nov. 2014.
Moffatt, Mike. "How Do Economists Define Supply?" About Education. N.p., n.d. Web. 02 Nov. 2014.
