Premium Essay

Economics-Law of Demand

In: Business and Management

Submitted By desire6882
Words 2976
Pages 12
ECO 201

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 you have experienced each one.
Answer: The demand curve is technically a graph of demand schedule where the customer’s demand is represented. This graph lists the quantities of goods or services that customers are willing to buy at different prices. The change in the quantity demanded is a movement along the demand curve and the change in the demand is represented by a...

Similar Documents

Premium Essay

Article Analysis Paper

...The principles of supply and demand are what most think of when the topic of economics emerges. Although the study of economics covers a broad range of meaning, one cannot help but to think that economics cover the relationships between people and spending habits. This paper will define economics, the law of supply, and the law of demand. In addition to defining terms, this paper will take the article, Demographic Analysis for Consumer Spend in Communications, and list the factors contributed to the change of supply and demand with regards to communications. Defining Economics The study of economics consists of a broad range of meaning. A brief definition can be that economics is a social science concerned with the study of economies and the relationships between them (Unknown, 2010). In reality, economics studies the production, distribution, and consumption of goods and services in a social setting. To further understand economics and the principles of supply and demand, the branch of microeconomics must be defined. Microeconomics is the study of how a household spends its money. Microeconomics also studies the way businesses determines how much of a product to produce and what pricing strategy to use. Microeconomics also studies how individual markets and industries are organized, what patterns of competition they follow, and how these patterns affect economic efficiency and welfare (Unknown, 2010). Microeconomics is the branch which business sways the......

Words: 880 - Pages: 4

Premium Essay

Definitions Paper

...Paper Economics What is economics? “Economics is the study of how human beings coordinate their wants and desires, given the decision-making mechanisms, social customs, and political realities of the society” (Colander, page 4). Three main problems that need to be solved in the economy are what and how much to produce, how to actually produce it, and whom is it being produced for. Of course we all want more that can be produced, which causes a scarcity of the products. Microeconomics What is microeconomics? “Microeconomics is the study of individual choice, and how that choice is influenced by economic forces (Colander, page 15)”. In other words, it is the study of how companies’ price their merchandise, whether or not I should buy something, what resources are going to be needed. Opportunity cost is associated with microeconomics, and is the benefit that you can get if you choose an alternative. For example, if I spend all my time on homework then I will have less time to watch television. The invisible hand theorem is also associated with microeconomics, through price mechanism. Basically, when quantity supplied or demanded is greater than what is available, the prices will rise or fall. Law of Supply What is the law of supply? “The law of supply is based on substitution and the expectation of profits (Colander, page 90)”. Supply is the mirror image of demand, and we need demand in order to have supply. A good example of the law of......

Words: 619 - Pages: 3

Premium Essay

Microeconomics and the Laws of Supply and Demand

...Microeconomics and the Laws of Supply and Demand Terry Cerami ECO/365 September 21, 2015 David Flesh Microeconomics and the Laws of Supply and Demand Utilizing the supply and demand simulation ("University Of Phoenix", 2014), I will illustrate two macroeconomic and two microeconomic principles demonstrated in the simulation and expound on why these principles are categorized as microeconomic or macroeconomic. Also, one shift of the demand curve and one shift of the supply curve from the simulation will be identified with explanations for the shifts. Further, I will analyze the influence on decision making in correlation with quantity and the equilibrium of price and how these concepts of demand and supply can be pragmatic in everyday business or within the current work environment. Finally, I will explain how price elasticity of demand has an immense impact on products pricing strategy and its purchase from the consumer. Macroeconomic and Microeconomic Principles The first macroeconomic principle demonstrated within the Supply and demand Simulation is Price Ceilings. Price Ceilings ensue through legislation as laws are enacted establishing a lawful ceiling of how high the cost of a product can be ("Price Ceilings", n.d.). When a price ceiling is established, there is further demand than what is available at the equilibrium price. This is a result of there being a sufficient supply in quantity of demand than supplied quantity. For example, in the simulation......

Words: 1134 - Pages: 5

Premium Essay

Test Book

...Economic Theory HIGHER SECONDARY- SECOND YEAR Untouchability is a sin· Untouchability is a crime Untouchability is inhuman ·TAMILNADU TEXTBOOK AND EDUCATIONAL SERVICES CORPORATION College Road, Chennai- 600 006. ii CONTENTS Page No 1 Nature and Scope ofEconomics 2 Basic Economic Problems 33 3 Theory of Consumer Behaviour 47 4 Demand and Supply 77 5 Equilibrium Price 103 6 Production 117 7 Cost and Revenue 143 8 Market Structure and Pricing 161 9 Marginal Productivity Theory of Distribution 183 10 Simple Theory oflncome Determination 205 11 229 Monetary Policy 12 Fiscal Policy 247 iii Chapter 1 Nature and Scope of Economics Introduction Economics is a social science which deals with human wants and their satisfaction. It is mainly concerned with the way in which a society chooses to employ its scarce resources which have alternative uses, for the production of goods for present and future consumption. Political economy is another name for economics. “Polis” in Greek means a State. The early writers used the term “Political Economy” for the management of the State. A person who runs a family is expected to make the best use of the income of the household. Similarly, the State is expected to get the maximum benefit for the society. Hence the term “Political Economy”. The existence of human wants is the starting point of all......

Words: 39159 - Pages: 157

Premium Essay

Article Analysis

...for the simple fact of it being affordable. The consumers hardly ever look at the purchase habits of other consumers that is the company’s job to do. There are many facets that a company has to look at, such as the trends and consumption patterns of the consumers that consumers are not too aware of. Taking all of this into consideration, the purpose of this paper will be to define economics, define microeconomics, define law of supply, as well as define the law of demand, ad to also identify the factors that lead to a change in supply and a change in demand. What is economics? Economics is more than just the “economy.” Economics is the study of how human beings coordinate their wants and desires, given the decision-making mechanisms, social customs, and political realities of the society (Colander, 2008). Merriam-Webster defines economics in a simpler way as a social science concerned chiefly with description and analysis of the production, distribution, and consumption of goods and services (2009). The key word in the definition given by Colander is coordinate. In the study of economics there are three central coordination problems any economy must solve, which are: what, and how much, to produce; how to produce it; and for whom to produce it (Colander, 2008). These questions are quite complicated and there are no easy answers to them. When trying to solve these questions, economies find that consumers want more than what is available to them which lead to......

Words: 1232 - Pages: 5

Premium Essay

Swot Analysis

...Micro- Economic Factors and Legal Considerations That may influence ABC Complete Kitchen Inc., SKS5000-8 Comprehension Strategic Knowledge Studies Mohamed Benhalla October 26th, 2014 Professor Karl LIyod Memorandum To: ABC Completes Kitchen, Inc. From: Mohamed Benhalla Date: October 26th, 2014 Subject: Micro- and micro- economic factors and legal considerations Firms operate their business in climate of dynamic business environment and ongoing process, which is not steady due to many factors that influence their operational activities of business. The economics factors, and legal factors are among the very important factors that affect the economy as in the whole and the business in particular. To operate a business successfully in the dynamic environment and to follow the changes of the market, the broad of directors of ABC Complete Kitchens, Inc., should include economic and legal consideration in operations plan, to have reliable market conditions and avoid the product liability. However, the economic factors can be described as the external or internal factors that impact the financial status of the business such as labor costs, taxation, and interest rate etc. Where in the other hand, legal factors are the laws and rules that regulate the business to behave in the right way such organizational law, employment law, contract law, and securities law etc. This memorandum will describe and a will analyze the macro- and micro- economics......

Words: 2141 - Pages: 9

Premium Essay

Manegerial Economics

...MANAGERIAL ECONOMICS Study material COMPLEMENTARY COURSE For I SEMESTER B.COM/BBA. (2011 Admission) UNIVERSITY OF CALICUT SCHOOL OF DISTANCE EDUCATION CALICUT UNIVERSITY P.O. MALAPPURAM, KERALA, INDIA - 673 635 409 School of Distance Education UNIVERSITY OF CALICUT SCHOOL OF DISTANCE EDUCATION Study Material COMPLEMENTARY COURSE I SEMESTER B.COM/BBA Managerial Economics Prepared by: Module I, II, V(A) : Sri. M.V. Praveen, Asst. Professor, Dept. of Commerce, Govt. College Madappally. Module III, IV & V (B) : Sri. Vineesh A.K., Assistant Professor, Department of Commerce, Govt. College, Madappally. Dr.K.Venugopalan, Associate Professor, Department of Commerce, Govt. College, Madappally. © Reserved Edited & scrutinized by : Managerial Economics-I Sem.B.Com/BBA 2 School of Distance Education CONTENTS MODULE PARTICULARS PAGE NO. 5 12 33 42 1 II III IV INTRODUCTION DEMAND CONCEPTS PRODUCTION MARKET STRUCTURES AND PRICE OUTPUT DETERMINATION PRICING POLICY AND PRACTICES BUSINESS CYCLE V (A) V (B) 60 66 Managerial Economics-I Sem.B.Com/BBA 3 School of Distance Education Managerial Economics-I Sem.B.Com/BBA 4 School of Distance Education MODULE I INTRODUCTION Introduction The term “economics” has been derived from a Greek Word “Oikonomia” which means „household‟. Economics is a social science. It is called „social‟ because it studies mankind of society. It deals with aspects of human behavior....

Words: 5987 - Pages: 24

Premium Essay

Supply vs Demand

...Supply and demand are basic economic concepts that are usually applied in a market environment where there is a presence of a manufacturing firm and consumers. Both are also components of an economic model which is an instrument in determining the price and quantity of a particular product in a given time or place. “Supply” is defined as “the amount of goods or services that can be provided by a company to its consumers or clients in an open market” while “demand” is said to be “the willingness of the consumers or clients to buy or receive products or services from a firm in the same open market.” These concepts are always present in every economic activity – whether in business and anyplace where economic exchange is present. In economics, both concepts also adhere to their own respective laws. The law involves a particular concept and its relationship to the price and its counterpart concept. The law of supply states that the supply and price are directly related. If there is an increase in price, the same increase applies to the supply due to the owner’s increased production and expectation of profits. If the price goes down, there is no reason to increase production. On the other hand, the law of demand conveys the inverse relationship between price and demand. If the demand is high, the price goes down to make the product more available, and the reverse happens when the demand is low while the price goes up to make up for the product costs. Both laws only apply as......

Words: 703 - Pages: 3

Premium Essay

Managerial Economics University of Calicut

...MANAGERIAL ECONOMICS Study material COMPLEMENTARY COURSE For I SEMESTER B.COM/BBA. (2011 Admission) UNIVERSITY OF CALICUT SCHOOL OF DISTANCE EDUCATION CALICUT UNIVERSITY P.O. MALAPPURAM, KERALA, INDIA - 673 635 409 School of Distance Education UNIVERSITY OF CALICUT SCHOOL OF DISTANCE EDUCATION Study Material COMPLEMENTARY COURSE I SEMESTER B.COM/BBA Managerial Economics Prepared by: Module I, II, V(A) : Sri. M.V. Praveen, Asst. Professor, Dept. of Commerce, Govt. College Madappally. Module III, IV & V (B) : Sri. Vineesh A.K., Assistant Professor, Department of Commerce, Govt. College, Madappally. Dr.K.Venugopalan, Associate Professor, Department of Commerce, Govt. College, Madappally. © Reserved Edited & scrutinized by : Managerial Economics-I Sem.B.Com/BBA 2 School of Distance Education CONTENTS MODULE PARTICULARS PAGE NO. 5 12 33 42 1 II III IV INTRODUCTION DEMAND CONCEPTS PRODUCTION MARKET STRUCTURES AND PRICE OUTPUT DETERMINATION PRICING POLICY AND PRACTICES BUSINESS CYCLE V (A) V (B) 60 66 Managerial Economics-I Sem.B.Com/BBA 3 School of Distance Education Managerial Economics-I Sem.B.Com/BBA 4 School of Distance Education MODULE I INTRODUCTION Introduction The term “economics” has been derived from a Greek Word “Oikonomia” which means „household‟. Economics is a social science. It is called „social‟ because it studies mankind of society. It deals with aspects of human behavior....

Words: 5987 - Pages: 24

Premium Essay

Market Equilibration Process

...in our daily activities. Economic equilibrium is “a condition or state in which economic forces are balanced. It can also be defined “as the point where supply equals demand for a product – the equilibrium price is where the hypothetical supply and demand curves intersect” (Investopedia, 2013). It is important to understand supply and demand of a product in order to find equilibrium. In today’s market, consumers are usually weary about purchases of large items due to the fact there are many competitors competing for the same potential customers. Could you live without the internet, cell phone, microwave, television, or any other electric technologies? Law of Demand and Supply The world today have grown to rely heavily on technology, especially the cellular phones, in their daily activities. “The average U.S. household today owns at least 23 consumer electronic products” (Get Energy Active, 2011). As the technology in cell phones changes, consumers are eager to purchase the latest styles whether for practical uses or to be consider part of the “in crowd”. Suppliers uses this information in researching and to appropriately distribute the products and services by applying the laws of demand and supply. The law of demand is when “supply is held constant, an increase in demand leads to an increased market prices, while a decrease in demand leads to a decreased market price” (InvestorWords, 2013). The law of supply can be defined as “an economic theory which states......

Words: 836 - Pages: 4

Premium Essay

Defining Economic

...Defining Economic Economic is the social science that examines how people, government, businesses, and nation make choice on dealing with limited resources to satisfy their wants and needs. Economic is broken down into many forms. First there is macroeconomic, which focus on the behaviors of the combined economy. Next there is microeconomics, which is the study on separate buyers. The central to solving economic divided into three parts. First, is what products need to be produce, and how much to produce. Second, is how the products will be produce. Last, who are the products produce for (Colander, D. C. 2008). Microeconomic is the study of the market performance of individual buyers and firms in an effort to understand the decision-making process of businesses and family. Microeconomic concentrate on the relationship between individual buyers and sellers. It also examined the influences that will affect the choice made by users and vendors. Microeconomic focus on the supply and demand and how each firms make the choice of how much of something they must produce, and how much the goods will be charge. The buyers’ demand of the goods help sellers determines the price of the goods. The term of supply refer to how much the market can offer to the buyers. The quantity supplied indicates to the volume of certain product creators agree to supply base on the certain price. With the law of supply, it proves the quantities that will be sold for a certain price. In......

Words: 1129 - Pages: 5

Premium Essay

Compurter

...1. A DISTINCTION BETWEEN THEORY AND LAW This is a common question, and a common misconception. Unfortunately, most people are taught a hierarchy of certainty: hypothesis becomes theory and then, with more support, a theory becomes law. This notion is wrong. Laws and theories serve different purposes and each have a unique nature. The current consensus among philosophers of science seems to be this: Theories are explanations of observations (or of laws). The fact that we have a pretty good understanding of how stars explode doesn't necessarily mean we could predict the next supernova; we have a theory but not a law. Laws are generalizations about what has happened, from which we can generalize about what we expect to happen. Laws describe. They pertain to observational data. The ability of the ancients to predict eclipses had nothing to do with whether they knew just how they happened; they had a law but not a theory. William McComus lists gravity as a modern example of a well-established law for which no really satisfying theory is available. We can use the Law of Gravity, and even correct it for the effects of relativity (General Relativity), but we don't have any consensus notion of how it functions. 1b. WHY IS THE LAW OF DEMAND AND SUPPLY CALLED LAW? The common sense principle or law that defines the generally observed relationship between demand, supply, and prices: as demand increases the price goes up, which attracts new suppliers who increase the supply......

Words: 3729 - Pages: 15

Premium Essay

Eco/365 Week 1 Answers

...The law states that all factors are equal, as the price of good increase the demand of consumer decrease and vice versa. [Investopedia (2015)] The law states that if the price paid by consumers rises, the suppliers increase the supply of the good. [Economictimes (2015)] It is a relationship of measuring change in quantity of demand of any good and the change in price of that good. The formula to measure it is that Price elasticity of demand=% change in demanded quantity/ %change in price. [Economics online (2015)] It is field of economics that studies about the behavior of aggregate in economy. It studies about the nation income, rate of growth and price levels. [Investopedia (2015)] It is about the factors effecting the individual economic choices, how the changes effects the individual decisions and not of the aggregate of economy. The include of theory of demand, theory of firm and demand of labor comes under microeconomics. [Business dictionary (2015)] I. Petrol II. Diamonds [Economicshelp (2015)] Investopedia (2015).Law of demand. (WEB) Retrieved from: http://www.investopedia.com/terms/l/lawofdemand.asp Economic times (2015).Law of supply. (WEB) Retrieved from: http://economictimes.indiatimes.com/definition/law-of-supply Economic Online(2015).Price elasticity of demand (WEB) Retrieved from: http://www.economicsonline.co.uk/Competitive_markets/Price_elasticity_of_demand.html Investopedia (2015). Macroeconoics. (Web) Retrieved......

Words: 264 - Pages: 2

Premium Essay

Economics

...Supply & Demand Paper Economics How this whole world runs is based on the economics from country to country. Economics is the cause and effect of everything from; unemployment, bankruptcies, corporations going under, individual consumers, and the list goes on and on. Every aspect of business and society is related to economics. With economics lie 3 central problems: what to produce and how much, how to produce it, and who do you produce it for. In our society, especially in the United States, we have one of the strongest economies in the world. In the past year or so, America’s economy has started to slip. For example, it kind of started with the bailouts of the major banks in the U.S. The major banks started to fall and fall fast. The banking system is a huge factor of our economy and business. It is where our money comes from really. Real Estate loans, Business loans, Stock Market, etc. The major banks hold our economy together. This is why some think it was necessary to bail these banks out and put America further into an unimaginable deficit. Economics is a broad study of supply and demand. Law of Supply The law of supply is a simple concept. It is based off the expectation of profits and substitution when needed. It states that as the prices rise of a good let’s say, the supplied quantity is going to rise as well. According to Investopedia-Forbes Digital Company (2009) that the law of supply is, “a microeconomic law stating that, all other factors being......

Words: 1039 - Pages: 5

Premium Essay

Market Equilibration

...is essential for mangers to know how to apply economic principles, specifically supply and demand, to everyday business decisions. In this paper I will describe several economic concepts, such as market equilibrium, supply and demand, and apply their relationship to a real world event. Market Equilibrium Market equilibrium is a very important concept in the study of economics. “Market equilibrium is a market state where the supply in the market is equal to the demand in the market (“Market Equilibrium in Economics,” 2015).” Often times the market is not in equilibrium, meaning that the quantity supplied does not equal the quantity demanded from consumers. When this occurs it creates shortages or a surplus of goods. A surplus happens when there is excess supply or the quantity supplied is greater than the quantity demanded. A shortage occurs when there is excess demand or the quantity demanded is greater than the quantity supplied (“Market Surpluses & Market Shortages,” 2006). Ultimately, the concept is derived from the laws of supply and demand, which will be discussed in the following paragraphs. Supply “Supply is a schedule or curve showing the various amounts of a product that producers are willing and able to make available for sale at each of a series of possible prices during a specific period” (McConnell, Brue, & Flynn, 2009, p. 41). It is important for business managers to know the importance of the law of supply, which states as a prices rises,......

Words: 814 - Pages: 4