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Laws of Demand and Supply

In: Social Issues

Submitted By CarlaKent
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1. The law of demand holds because it is based on common sense. The Law of Supply can be observed as demand comes from real people and exists in our day to day experiences, regardless of income or social status.
2. a. Change in quantity demanded refers to the amount of a good a person can buy as the price of the good changes. This is characterised by movements along the demand curve.
Change in demand: when a factor other than price is responsible for an increase or decrease in the amount of a good that a person wishes to purchase. This is characterised by a shift in the demand curve.
b. Normal Good is a product for which, ceteris paribus, an increase in income results in an increase in demand.
Inferior Good is a product for which, ceteris paribus, an increase in income results in a decrease in demand.
Substitute: refer to two goods, where an increase in the price of one good leads to an increase in the demand for the other.
Compliment: refers to two goods, where an increase in the price of one leads to a decrease in the price of the other.
An shift to the left of a demand curve can be seen when there is a decrease in demand, caused by Lower income, Complimentary goods, a decrease in population, Government policy such as taxation, seasonal factors and tastes.
A shift to the right of a demand curve can be seen when there is an increase in demand, caused by higher income, Substitute goods, an increase in population, Seasonal factors, Consumer expectations and tatses.

3. a. The Supply curve is upward sloping due to the positive relationship between price and quantity supplied.
b. The law of supply does not always hold. Consider market control created by a monopoly. In this case there may be no incentive for the supplier to increase the quantity supplied, even though he may increase the price of the good or service.
5.1. Surplus: The condition where

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