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Demand, Supply, Market Equilibrium Essay

1035 words - 5 pages

I) Demand
• definition: the quantity of a specific good that people are willing and able to buy during a specific period, given the choices available
- the lower the price the more of the thing they will consume
• market prices
- the prices charged for goods whether we buy them or not
- the market prices of goods and the amounts consumers purchase are negatively related
• demand prices
- reflects the relative values an individual subjectively places on having a but more or a bit less of a good
• Law of Demand:
- All else being equal, consumers buy more of a good during a given period the lower its relative price, and vice versa.
- the principle of diminishing marginal utility ...view middle of the document...

Changes in Quantity Demanded
- Changes in Demand
(i) reflect changes in influences on purchases other than a good’s own price
(ii) shifts of demand curves
- Change in the Quantity Demanded
(i) follow changes in the price of the good
(ii) movements along the demand curve

II) Supply
• definition: refers to the quantity of a specific good that sellers will provide under alternative conditions during a given period
• Law of Supply
- all else being equal, higher prices induce greater production and offers to sell more output during a given period, and vice versa
- higher prices provide incentives to expand production
- attempts to expand output ultimately succumb to diminishing returns
• The Supply Curve
- shows the maximum amounts of a good that firms are willing to furnish at various prices during a given period
- supply price
(i) the minimum price that will induce a seller to increase production beyond its current level
• Changes in Supply
- production technology
(i) costs fall and supply grows when technology advances
(ii) some occasions when technology regresses and drives up costs
- resource cost
(i) supply declines when resource costs rise
- prices of related producible goods
(i) substitutes in production
(a) changes in the prices of other potential outputs can shift the supply of the current good
(b) price hikes increase the quantity of a good supplied by using resources that would have been devoted to other types...

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