Demand and Supply Paper - Essay Example

This people interact in the market freely, or at the time there is intervention by the government or local authority (Welbourn 2007). The forces of demand supply come together and make up the market equilibrium. If the supply of a certain good or service is too high, this will push the price for that particular good or service downwards. If there is too much demand in the market surpassing the supply, the prices of the goods or service will go up (Welbourn 2007). This is because their will be too much money chasing too little goods.

For the market to be in equilibrium the forces of demand, have to come together. This will help to determine the price of a particular good or service. To help take in this concept, I have decided to elaborate the concept of demand and supply using a good that most people cannot do without. Toothpaste. Most people tend to be extremely uncomfortable when they do not brush their teeth using toothpaste. The dentists also recommend people to brush their teeth with toothpaste at least twice in a day.

This makes toothpaste a vital commodity in every household. QQuantity The above are the demand and supply curves for toothpaste. The demand curve is determined by plotting price on the y-axis and quantity on the x-axis. Since tooth paste is packed in different sachets containing different quantities. One can obtain this information in the local supermarkets. We take the different quantities of toothpaste and the amount they sold for. Through this method, one can easily come up with the demand curve for toothpaste.

The same process is to be followed so as to determine the supply curve. The curve obtained by plotting the quantity on the x-axis and price on the y-axis (Welbourn 2007). Equilibrium is the point where the demand and supply curve intersect. In our case indicates no allocative inefficiency. The equilibrium price is P while the equilibrium price will be Q. This, however, is not static as the prices of toothpaste are constantly changing. These fluctuations have an effect on demand and supply curves.

This will in turn affect the equilibrium price and equilibrium quantity (Klein 2011). In our case, however, the markets are not in perfect equilibrium. This is because there might be excess demand or supply of toothpaste in the market. Another reason might also be that the market does not entirely depend on demand or supply forces to determine the market price (Welbourn 2007. There will be government intervention through taxes, licenses and various other regulations put in place by the government.

There are two economic theories that may be used to explain this phenomenon. The first one is the theory of demand, and the other one is the theory of supply (Adil 2006). The theory explains the relationship between the goods demanded by the consumer and the prices. The more a good supplied in excess, in the market then the price for the good or service will drop. This will also have an effect on the equilibrium price as it will also drop. The other theory is that of supply theory. This theory explains that when consumers are in need of a product.

That is the supply does not meet the consumers demand than the prices of that commodity increases. In other words, whenever the supply of a commodity is too much the price of a product will decrease (Klein 2011). For the market to be in perfect equilibrium, the following has to happen. The cost of production for any good or service should be constant. This