...------------------------------------------------- Supply and demand The price P of a product is determined by a balance between production at each price (supply S) and the desires of those with purchasing power at each price (demand D). The diagram shows a positive shift in demand from D1 to D2, resulting in an increase in price (P) and quantity sold (Q) of the product. Supply and demand is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers (at current price) will equal the quantity supplied by producers (at current price), resulting in an equilibrium of price and quantity. The four basic laws of supply and demand are:[1] 1. If demand increases and supply remains unchanged, then it leads to higher equilibrium price and quantity. 2. If demand decreases and supply remains unchanged, then it leads to lower equilibrium price and quantity. 3. If supply increases and demand remains unchanged, then it leads to lower equilibrium price and higher quantity. 4. If supply decreases and demand remains unchanged, then it leads to higher price and lower quantity. ------------------------------------------------- The graphical representation of supply and demand The supply-demand model is a partial equilibrium model representing the determination of the price of a particular good and the quantity of that good which is traded. Although...
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...Assignment 1 Explain the difference between the law of demand and the law of supply. What does the phrase ‘other things equal” mean? Why do we need that? Answer: The difference between the law of demand and the law of supply is that they both move into opposite direction. The law of demand states that the consumers will demand more of goods or services if the price goes down. The variable of the price drop creates an incentive to increase the demand for the goods and services. The law of supply moves in the opposite direction with its main focus being the suppliers of goods or services. There will be a larger incentive for the increase of goods supplied if the price increases. Both of these laws use the “other things equal” assumption or ceteris paribus. This assumption is used when identifying the relationship between two variables like a price and quantity. By using this assumption, economists can isolate the variables so other factors will not affect the development of the theory. When we see the term other things equal we know that this assumption is made to indicate that other variables are not changing or affecting the variables of interest. Without this assumption it would be impossible to develop theories about the relationships and make a causal connection between two variables that can be identified. 2 In your own words, explain the difference between a movement along the demand curve and a shift in demand. Then, provide an example from your own personal life where...
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...Instructors Name: Date: Supply vs Demand Abstract Supply and demand are two important concepts in a marketplace. These concepts are dynamic and vary from market to market. The objective of this paper is to compare and contrast the supply and demand concepts based on available scholar material. The comparison involves reviewing the literature material under the definitions of demand and supply; the relationship between supply and demand; the effect of supply and demand on the market; and the factors affecting demand and supply in the United States of America. The review uses book materials in economics including the classical economics. Definition of demand and supply The demand in economics is defined as the quantity of a good or service that consumers are willing and able to purchase at a given price during a given period of time, (Richard Ely, 1919). In economics, demand is greater than a desire to purchase. Richard argues that a beggar, for instance, may desire a good house, but due to lack of money to pay for the house, the demand becomes ineffective. Such a demand has no purchasing power. Thus, demand in a market is dependent on desire, affordability and willingness to purchase. Supply is defined as the number of goods and services that the seller is willing to sell at a given price, (Richard Ely, 1919). Richard clearly states that supply is seller-centered. Like the demand concept, supply depends on the availability of goods, the price of the goods and the willingness...
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...The curve describing the supply side of the aggregate economy in the short run is the short-run aggregate supply ( SAS ) curve, the curve describing the demand side of the economy is the aggregate demand curve, and the curve describing the highest sustainable level of output is the long-run aggregate supply ( LAS ) curve. The first thing to note about the AS/AD model is that it is fundamentally different from the microeconomic supply/demand model. In microeconomics the price of a single good is on the vertical axis and the quantity of a single good on the horizontal axis. The reasoning for the shapes of the micro supply and demand curves is based on the concepts of substitution and opportunity cost. In the macro AS/AD model, the price level of all goods, not just the price of one good, is on the vertical axis and aggregate output, not a single good, is on the horizontal axis. The shapes of the curves have nothing to do with opportunity cost or substitution.The AS/AD model consists of three curves. The curve describing the supply side of the aggregate economy in the short run is the short-run aggregate supply ( SAS ) curve, the curve describing the demand side of the economy is the aggregate demand curve, and the curve describing the highest sustainable level of output is the long-run aggregate supply ( LAS ) curve. The first thing to note about the AS/AD model is that it is fundamentally different from the microeconomic supply/demand model. In microeconomics...
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...Use the Supply & Demand model to explain how a good’s price is determined In ordinary practice, price is the quantity of payment or reimbursement given by one party to another in return for goods and services. It is generally expressed in some form of currency. This essay will discuss how a good’s price is determined using the demand & supply model. Supply & demand is perhaps one of the most fundamental concepts of economics. It is an economic model of price determination in a market. It ascertains that in a competitive market the unit price for a specific good will fluctuate until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers, resulting in an economic equilibrium of price & quantity. DEMAND Demand refers to the want or the willingness of the consumers to buy commodities. The demand for a product may be defined as the quantity of the product that a consumer will purchase at the existing price during a particular period of time. Demand is influenced by the price of commodities. The higher the price of the commodity, the lesser will be the demand of a rational consumer; other things remaining constant. The hypothesis of – other things remaining constant – is known as the ceteris paribus. The demand curve illustrates the relationship between price & quantity demanded (as the price increases the quantity demanded decreases). Movement along...
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...statement. When goods are substitutes, if a price of one good goes up, then the demand for another good goes up. A fall in the price of a good causes the demand to go down for its substitutes. When two goods are matches, a decrease in the price of one results in an increase in demand for the other. X and Y are complemented and joined. If the price of X rises, the demand for good X will fall. The fall in consumption of good X will cause a fall in consumption of Y. Therefore the demand for Y will fall and the demand curve for Y will shift to the left. It will give a lower quantity demanded and make it a lower price. Panel A the price of X rises, quantity demanded of X reduces to X1 Panel B the demand curve shifts because of Y going to the left. B) I agree with this statement. The demand curve shows how much of a product people would want at a given price. A supply curve will show how much of a product companies will supply at a given price. Equilibrium quantity supplied = quantity demanded at the current price. If the supply curve shifts the equilibrium moves along the demand curve and reaches a new equilibrium. In this supply and demand curve, the demand and supply curve D and S intersect and equilibrium E. As the supply shifts to the right the quantity increase Q1 and the prices falls to P1. C) I do not agree with this statement. When income is higher demand for goods increase and when income is lower demand obviously goes...
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...Marwan Youssef Supply and demand One of the most basic concepts of economics is Supply and Demand. These are really two separate things, but they are almost always talked about together. Supply is how much of something is available. For example, if you have 9 baseball cards, then your supply of baseball cards is 9. If you have 6 apples, then your supply of apples is 6. Demand is how much of something people want. It sounds a little bit harder to measure, but it really isn't. To measure demand, we can use a very simple numbering system, just like the supply one. If 8 people want baseball cards, then we can say that the demand for baseball cards is 8. If 6 people want apples, then we can say that the demand for apples is 6. Is supply and demand from the key concepts of Economics, is the backbone of a market economy, Where the application refers to first kilometers (quantitative) for a product or service that is requested by the buyer. And quantity is the quantity that the superpower individuals willing to purchase being saturated needs and desires, for a given price. And the relationship between the price of the product and the quantity of the product to be purchased. The offer represents a market which offers kilometers available quantity indicating the amount of a certain commodity, Where producers are willing to supply. The relationship between price and service or product provided to figure out the relationship and the price is a reflection of supply and demand. * The Law...
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... Elasticity • • • • I. The price elasticity of demand measures how strongly demanders respond to a change in the price of a good. The price elasticity of demand can be used to make quantitative predictions of how changes affect the price and quantity demanded of a good. The income elasticity of demand measures how strongly demanders respond to a change in income, and the cross elasticity of demand measures how strongly demanders respond to the change in the price of another good. The price elasticity of supply measures how strongly suppliers respond to a change in the price of a good. Price Elasticity of Demand • In general, elasticity measures responsiveness. The price elasticity of demand measures how responsive demanders are to a change in the price of the good. This information is often useful for both businesses and governments. • The price elasticity of demand is a units-‐free measure of the responsiveness...
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...Elasticity of Demand 1) A price elasticity of demand of 2 means that a 10 percent increase in price will result in a A) 2 percent decrease in quantity demanded. B) 20 percent decrease in quantity demanded. C) 5 percent decrease in quantity demanded. D) 2 percent increase in quantity demanded. E) 20 percent increase in quantity demanded. Answer: B Diff: 2 Type: MC Topic: Price Elasticity of Demand 2) The price elasticity of demand is a units-free measure of the responsiveness of the ________ when all other influences on buying plans remain the same. A) quantity demanded to a change in the price of a substitute or complement B) quantity demanded to a change in income C) quantity demanded of a good to a change in its price D) price to a change in quantity demanded E) none of the above Answer: C Diff: 1 Type: MC Topic: Price Elasticity of Demand 3) The concept used by economists to indicate the responsiveness of the quantity demanded of a good to a change in its price is the A) cross elasticity of demand. B) income elasticity of demand. C) substitute elasticity of demand. D) price elasticity of demand. E) elasticity of supply. Answer: D Diff: 1 Type: MC Topic: Price Elasticity of Demand 4) If a 10 percent rise in price leads to an 8 percent decrease in quantity demanded, the price elasticity of demand is A) 0.8. B) 1.25. C) 8. D) 0.125. E) 80. Answer: A Diff: 2 Type: MC Topic: Price Elasticity of Demand 5) If a large...
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...DEMAND AND SUPPLY The Individual Demand Curve and the Law of Demand 1. The individual demand curve shows the relationship between the price of the good and the quantity that a consumer is willing to buy during a particular time period, holding all other variables constant. To construct a demand curve, we use the data shown in a demand schedule which contains, for each price, the quantity that a consumer is willing to buy. 2. The law of demand states that the lower the price, the higher the quantity demanded, ceteris paribus. Thus the demand curve is negatively sloped because of: a. Substitution effect: A fall in the price of the good lowers the opportunity cost of consuming it (the number of other goods you must give up), and thus consumers are likely to substitute this good for others. b. Income effect: A fall in the price means that a given amount of money will buy more of all goods; in other words, real income has increased. The consumer is likely to purchase more of this good and of other goods. 3. A change in quantity demanded refers to a movement along the demand curve and is caused ONLY by a change in price. From Individual to Market Demand 1. The market demand curve shows the relationship between the price of the good and quantity that all consumers together are willing to buy. 2. In addition to the number of buyers (population), factors other than the price of the good that determine individual demand are held constant along the...
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...C h a p t e r 4 ELASTICITY Topic: Calculating Elasticity Skill: Conceptual Price Elasticity of Demand 4) Topic: The Price Elasticity of Demand Skill: Conceptual 1) The slope of a demand curve depends on A) the units used to measure price and the units used to measure quantity. B) the units used to measure price but not the units used to measure quantity. C) the units used to measure quantity but not the units used to measure price. D) neither the units used to measure price nor the units used to measure quantity. A) B) C) D) When the quantity of coal is measured in kilograms instead of pounds, the demand for coal becomes more elastic. less elastic. neither more nor less elastic. undefined. Answer: C Topic: Calculating Elasticity Skill: Recognition 5) The price elasticity of demand equals A) the change in the price divided by the change in quantity demanded. B) the change in the quantity demanded divided by the change in price. C) the percentage change in the price divided by the percentage change in the quantity demanded. D) the percentage change in the quantity demanded divided by the percentage change in the price. Answer: A Topic: The Price Elasticity of Demand Skill: Conceptual 2) The price elasticity of demand depends on A) the units used to measure price and the units used to measure quantity. B) the units used to measure price but not the units used to measure quantity. C) the units used to measure...
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...Supply, Demand, and Equilibrium The demand function for product X is given by Qd = 1600 -30P -0.5M +40PR, where P refers to the price of X, M refers to money income, and PR refers to the price of related good R. We can conclude that *a. product X is an inferior good b. product X is a normal good c. product R is a complementary good for product X d. the demand for product X is perfectly elastic The supply schedule of a product is given by Qs = 10P – 40. Find the price if the quantity supplied is 20. a. P=2 b. P=4 *c. P=6 d. P=8 Referring to the question above, find the quantity supplied if the price is $50. a. Qs = 380 *b. Qs = 460 c. Qs = 510 d. Qs = 640 The demand schedule of a product is given by Qd = 220 – 5P. Find the quantity demanded if the price is $20. a. Qd = 90 b. Qd = 110 *c. Qd = 120 d. Qd = 140 Referring to the question above, find the price if the quantity demanded is 20. *a. P = 40 b. P = 50 c. P = 60 d. P = 70 Equilibrium in supply and demand analysis occurs when quantity supplied equals quantity demanded. If Qs= -5 + 3P and Qd= 10 – 2P, equilibrium price equals _____ and quantity equals _____: *a. P = 3, Q = 4 b. P = 2, Q = 3 c. P = 4, Q = 3 d. P = 1, Q = 2 Referring to the question above, suppose that the government sets a price floor on the product at $4. This would result in a a. shortage of 8 units of output b. shortage of 6 units of output c.* surplus of 5 units of output d. surplus of 3 units of output If Qs = -45 + 8P and Qd = 125 – 2P, what...
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...Question 1 a. What is the distinction between a money price and a relative price? The value of the goods and services in terms of money is called money price and the value of goods and services in terms of other goods and services is called relative price. b. Explain why relative price is an opportunity cost? Relative price is the price of goods and services in comparison to another and opportunity cost is the best alternative you give up when you do something. Thus both rrelative price and opportunity cost of a commodity is calculated considering the cost of other alternatives. So, we can say relative price is an opportunity cost. c. Goods whose relative price has risen or fallen by a large amount in recent times. In Scotland there is rise of finance marked from £17.7 billion to 18.8 billion, a rise of 6% from a year earlier. But the traditional lending to business has fallen 2 % from 383 billion in 2014 to 375 this year. Question 2 a. Define the quantity demanded of a good or services. Quantity demanded of a goods and services is the quantity of a goods and services that people are willing to buy at a particular price at a particular point of time. b. What is the law of demand and how do we illustrate it? According to law of demand, other tings remaining constant, if the price of the commodity falls, the quantity demanded of it will rise and if the price of the commodity rises, its quantity demanded will decline. Thus, there is an inverse relationship...
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...Supply and demand 1. Demand and factors influencing it. The law of demand Demand is an economic category, which characterizes the requirement of buyers for a particular product, provided with sufficient means of payment that allows you to purchase the goods at a certain price in a given time period for a particular market or in a particular country. Distinguish individual and aggregate demand. Individual demand is the demand of a specific buyer on a specific product, and in this market. Aggregate demand is the total demand for goods and services in any country. Also there are primary and secondary demand. Primary demand is demand for the product or services a specific category of goods in General. For example, it may be the demand for coffee or the demand for insurance services. Secondary (or selective) demand is the demand for goods of a certain brand or company for services of a certain type. Additionally, the demand is negative, the absent, the latent (potential), full, over, falling (falling), the fluctuating, irrational, rush (avalanche). Negative demand is the demand that occurs in cases when consumers "dislike" the product and avoid its purchase. The missing demand is the demand for the goods that are unnecessary in the market or obsolete. Latent demand is the demand expected in the future, the demand of potential buyers. Full demand is the desired demand exactly the relevant production possibilities and policy of the manufacturer of the product or service. Excessive demand...
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...shows the quantity of goods that consumers are willing to buy at different prices is the A) elasticity B) market demand curve C) market supply curve D) market equilibrium 2. The law of demand states : A) that price and quantity demanded are inversely related. B) that price and quantity demanded are inversely related, holding all other factors that influence demand fixed. C) that demand for a good comes from the desire of buyers to directly consume the good itself. D) an increase in demand results in an increase in price. 3. Which of the following statements best illustrates the law of demand? A) When the price of pepperoni rises, the demand for pizza falls. B) When the weather gets hotter, the quantity demanded of ice cream rises. C) When the price of lemons falls, the demand for lemonade rises. D) When the price of eggs rises, the quantity demanded of eggs falls. 4. Which of the following is not typically a factor held constant when deriving a demand curve for clothing? A) consumer income. B) the price of clothing. C) the price of other goods. D) consumer tastes. 5. What is the difference between a derived demand curve and a direct demand curve? A) Derived demand is unknown, whereas direct demand is known. B) Derived demand is unobservable, whereas direct demand is observable. C) Derived demand is demand determined by the demand for another good, whereas direct demand is demand for a good itself. D) Derived and direct demand are both terms referring...
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