Supply And Demand And Their Determinants Economics Essay

Supply And Demand And Their Determinants Economics EssayBuyers are called beseechers, and Sellers and called suppliers.In this chapter we are particularly interested in using a large number of independent buyers and sellers.The Product Market involves strongs and overhauls, and the Factor Market involves the factors of increaseion (land, labor, capital, entrepreneurial ability).DEMAND IS A SCHEDULE that shows the amounts of a product con nubers are leave behinding and/or able to buy at each expense using a series of possible tolls during a limited time frame.The schedule shows how many units buyers (demanders) are willing and able to buy at the possible prices. The market price depends on the intersection of demand and publish.The (General) truth of Demand uses the assumption of ceteris paribus (other things being equal). This implies that as price increases, the corresponding cadence demanded falls. In other words, there is an inverse relationship between price and quanti ty demanded. The ceteris paribus assumption refers to constant prices of related goods, income, tastes, and all other things besides price.We will briefly touch upon the Marginal Rate of Substitution (MRS). This concept is related to the Income proceeds and the Substitution Effect.The Income Effect is when a land price increases the purchasing power of money income enabling one to buy more at a lower price or less at a high price, when incomes are unchanged.The Substitution Effect is when lower prices give incentive to substitute the lower priced good for now relatively higher priced goods.The Marginal Rate of Substitution is the rate, at the margin, at which a consumer is prepared to substitute one good or service for another and remain equally satisfied (have the same total Utility) and is equal to the slope of an indifference worm (Managerial Economics).The demand curve shows an inverse relationship between price and quantity demanded. It has a downward slope indicating a low er quantity at a higher price or a higher quantity at a lower price. measuring stick is on the horizontal axis and price is on the vertical axis.Market demand is the horizontal sum of individual demands. The transition from an individual demand schedule to a market demand schedule is done by summing individual quantities at mingled price levels. The market curve is the horizontal sum of individual curves.What other things affect demand (other that price)? Note that changes in the determinants of demand excite the location of the demand curve to the right or left. The determinants of demand are referred to as demand shifters. A change in a determinant of demand will change the demand schedule. A shift in the location of the demand curve is called a change in demand.Determinants of Demand1. Tastes favorable changes increase demand, unfavorable changes decrease demand.2. macrocosm More buyers increase demand, fewer buyers decrease demand.3. Income more income increases demand, l ess income decreases demand for normal goods. (An inferior good is when demand varies inversely with income).4. Prices of related goods Substitute goods (can be used in place of each other). This implies that the price of the substitute and demand for the other good are directly related, e.g., if the price of Coors beer rises then the demand for Budweiser will also rise.Complementary goods (can be used together, such as tennis balls and rackets, or college tuition and books). When goods are complements, there is an inverse relationship between price of one good and the demand for the other (e.g., if tuition rises, then students take fewer courses such that book demand will be lower).5. Expectations consumers views near the forthcoming prices, product availability, and income can shift the demand curve.A change in the quantity demanded denotes movement from one point to another on a frozen demand curve. That is, it denotes movement from one price-quantity relationship to another. Usually, the make up of a change in quantity demanded is a change in the price of a product under consideration.SUPPLYQuantity Supplied and its relationship to price which is normally referred to as Supply are developed into a SCHEDULE that shows amounts of a product a supplier is willing and able to produce and sell at each particular proposition price in a series of possible prices during a specific time frame.The show schedule shows those quantities that can be offered at various prices or answers the question, At what price will be required to induce various quantities to be offered?The general Law of Supply means that producers will produce and sell more of their product at a high price than at a low price. There is a direct relationship between price and quantity supplied. Given product cost, a higher price implies greater profits and thus an incentive to increase the quantity supplied.A change in any of the determinants of fork up can cause a change in supply, and a shift in the supply curve. These determinants of supply are called supply shifters. An increase in supply involves a rightward shift, where a decrease in supply involves a leftward shift. Note also that any movement along a fixed supply curve is referred to as a Change in Quantity Supplied.Determinants of Supply1. Resource Prices, i.e., the prices of the Factors of Production a rise in resource prices (of materials, labor, or other inputs) will cause a decrease in supply or a leftward shift in the supply curve a decrease in resource prices will cause an increase in supply or a rightward shift in the supply curve.2. Technology a technological improvement means more efficient production and lower costs so an increase in supply or a rightward shift in the supply curve.3. Taxes Subsidies a business tax is treated as a cost so decreases supply a subsidy lowers cost of production so increases supply.4. Prices of other related goods If the price of a substitute goods rise, producers can sh ift production towards the higher priced good causing a decrease in supply of the original good. If a raw material has a by-product, an increase in supply of one good implies a corresponding increase in supply of the by-product.5. Expectations Expectations about the future price of a product can cause producers to increase or decrease current supply. Inventories become important, e.g., the supply of gasoline as compared with heating oil.Number of Suppliers Generally the larger the number of suppliers the greater the supply. run conditions- Generally favorable conditions increase supply and unfavorable conditions decrease supply.STATIC ANALYSISStatic analysis is a sub-field of positive economic analysis that answers the questions about states of the economies, not about the process of change. One way of looking at economic phenomena is to examine the state of the economy under consideration by canvass one state with another. This is termed comparative statics.By the state of a gi ven economy one would appear to mean its average performance over a fairly long period, short-run fluctuations being canceled out. A static model exhibits an unchanging economy. The static equilibrium model is a methodology that attempts to balance economic forces. In a static economy (in which wants are unchanging and resources are unchanging), the state of equilibrium is where all the individuals or business firms in it are choosing those quantities that they opt to produce or to consume. Labor and capital (as well as other factors of production) are taken to be constant in a static economy. In other words, static theory can be treated as if it were in equilibrium, i.e., the quantities produced and consumed will be near their equilibrium quantities. By treating economic phenomena in this way, we can gain insights into the structure of the economy. Static equilibrium shows equilibrium at a point in time.