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Analysis of the microeconomic theory of supply and demand - Research Paper Example

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Name: Course: Tutor: Date: Analysis of the Microeconomic Theory of Supply and Demand The theory of supply and demand is one that any economist cannot go without mentioning in microeconomics as it is seen as the core of this segment of economics and makes a focus on household economics that deals with the buying and selling and involves the market forces…
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Analysis of the microeconomic theory of supply and demand
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Download file to see previous pages An individual quantity demanded is the amount of goods a consumer is willing and able to buy at a particular price while a market quantity demanded is the total amount of goods that all buyers in the market would be willing and able to purchase at a particular price (Robert and Marc). One will realize that demand focuses on the buyer’s choice but not actually the amount that the buyer will purchase and the use of price is stressed in defining the quantity demanded. Market demand is the sum of all the individual demands for a particular good or service. Since market demand is derived from individual demands, it is affected by all the factors that affect each buyer in the market. For that reason, market demand can be said to depend on an individual’s income, taste, expectations as well as prices of related goods. A demand schedule usually shows what happens to the quantity of goods demanded with the variation in their prices with all the other variables affecting the demand held constant. Individual demand curves are summed up horizontally to come up with the market demand curve. The law of demand states that the price of a good will rise as the quantity falls, with all factors held constant (ceteris paribus). This becomes so evident when something becomes expensive in the market since people will buy less of it. This observation applies to virtually everything that people buy in the market including magazines, nuts, foodstuff education and the rest. The price and quantity then exhibit a negative relationship in all these goods and services-when quantity rises, the price falls and when quantity fall, price rises. The law of demand was then derived by economists from this negative relationship between price and quantity which was a regular phenomenon in the market. This law only applies when all other factors influencing the buyer’s choice remain unchanged and only price of the good changes. Demand schedule is a table with a list of different quantities of a product demanded at different prices, all the other factors affecting demand decision held constant. For instance, demand schedule will show us that when the price of a bottle of maple syrup is $3.00, the quantity demanded will be 2000 bottles per month and as the price increases to $4.00 per bottle, the quantity demanded will be 1500 bottles per month and the rest are shown in the table below. One will clearly notice that the demand schedule obeys the law of demand: as the price per bottle increases, the quantity demanded will reduce. Demand schedule for Maple Syrup in a given market Price per bottlee) Quantity demanded (per month) $1.00 3,000 2.00 2,500 3.00 2,000 4.00 1,500 5.00 1,000 When these values are plotted in x and a y ax, a curve is formed which is referred to as the demand curve as shown below: Price ($) 5 4 3 1500 2000 Quantity demanded Demand curve therefore, is a curve that shows the relationship between the prices of a good and quantity demanded at such prices with all other factors affecting demand held constant. Each point in the demand curve shows the quantity that buyers will buy at a specific price. The demand curve is also observed to follow the law of demand and according to the law of demand, graphically, the demand curve slopes downward. There exist a variety of events in the market that affect the choice of a buyer. Some of these events will cause a movement along the demand curve ...Download file to see next pagesRead More
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