Contact Us
Sign In / Sign Up for FREE
Go to advanced search...

Impact of Scarcity and Choice on the Laws of Supply and Demand - Essay Example

Comments (0) Cite this document
In the paper “Impact of Scarcity and Choice on the Laws of Supply and Demand,” the author discusses the twin concepts of demand and supply. Microeconomics analysis of consumer behavior is explained by means of the law of demand and the firm behavior is explained by means of the law of supply…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER95.6% of users find it useful
Impact of Scarcity and Choice on the Laws of Supply and Demand
Read TextPreview

Extract of sample "Impact of Scarcity and Choice on the Laws of Supply and Demand"

The Law of supply, on the other hand, proposes that firms would supply more of a good at a higher price than they would at a lower price. Again all other factors, notably scarcity of the good, are held constant. This results in an upward-sloping supply curve. The market equilibrium is attained at a point where the demand and supply curves intersect giving us the equilibrium price. In this analysis, the impact of an increase in consumer income is shown by a shift in demand curve outside. On this demand curve, the consumer demands more of the good at the same price. Similarly, a specific choice pattern of consumers would result in a differing demand curve. For instance, take the example of a consumer who is a collector of paintings from a particular historic period. This consumer can pay any price for the desired painting up to a certain point and his demand curve may be shaped accordingly. Whereas the supplier would continue to be governed by the basic law of supply. Due to a differently shaped demand curve now the equilibrium price would be determined at the point of intersection of the unique collector's demand curve and normal supply curve for historic paintings. Similarly, a miser consumer may want to limit his consumption and demand even when the price of the good is falling. On the converse, a fashion-conscious consumer may be willing to buy fashion accessories even when prices of such accessories are going up. Consumer equilibrium would reflect a peculiar consumer choice pattern in each of these cases as the consumers confront normal upwardly sloping supply curves from producers in each of these markets. Another way t approach consumer analysis is by focusing on the utility and choice pattern of consumers. This is achieved through indifference curves. An indifference curve is a two-dimensional graphical representation of all those bundles of two goods which can be combined to give a consumer the same amount of utility which is also a maximum utility for combinations of given goods. Here the two axes (horizontal and vertical) of the graph would represent the units of each good and points plotted in the plot area, the various combinations of the two goods combined in consumption situations. The indifference curve is a particular selection of such combinations of goods, from out of the plot area, and all combinations on an indifference curve represent the fact that the consumer derives the same amount of total utility from consumption. Since utility derived from variously combined two goods on an indifference curve is the same; the consumer is said to be indifferent between various combinations of two goods and the curve carrying all such combinations is termed as the indifference curve. Normally, with desirable goods on both axes (say, apples and oranges) the curve has a certain shape, further from the origin when both quantities are positive than when one is zero. (Definition,2006) The underlying assumptions about individual preferences are: the consumer knows his own preferences: for any market baskets A and B he can reveal his preference patterns; that his preferences have transitivity; for any good, more is better than less and variety in consumption is preferred to consuming single goods. (Modern,2006) "Economists usually make some of the following key assumptions and conditions when they study economic problems (1) Individuals are (bounded) rational: self-interested behavior assumption ;(2) Scarcity of Resources: Individuals confront scarce resources;(3) Economic freedom: voluntary cooperation and voluntary exchange;(4) Decentralized decision makings: One prefers to use the way of Decentralized decision making because most economic information is incomplete or asymmetric to the decision marker ;(5) Incentive compatibility of parties: the system or economic mechanism should solve the problem of interest conflicts between individuals or economic units;(6) Well-defined property rights;(7) Equity in opportunity and (8) Allocative efficiency of resources."(Tian, 2006). While relative scarcity is assumed, as above, in entire microeconomic analysis; in absolute scarcity conditions, the supply curves undergo change. These are reflected in various forms of markets wherein the producers have differing degrees of control over the supplies. Thus we have a monopoly, monopolistic, duopolistic, oligopolistic markets wherein prices at equilibrium are higher than those in perfect markets assumed by classical laws of supply and demand as above. Such prices are invariably independent of the underlying cost functions of the producers. Read More
Cite this document
  • APA
  • MLA
(Impact of Scarcity and Choice on the Laws of Supply and Demand Essay, n.d.)
Impact of Scarcity and Choice on the Laws of Supply and Demand Essay.
(Impact of Scarcity and Choice on the Laws of Supply and Demand Essay)
Impact of Scarcity and Choice on the Laws of Supply and Demand Essay.
“Impact of Scarcity and Choice on the Laws of Supply and Demand Essay”.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Impact of Scarcity and Choice on the Laws of Supply and Demand

MicroEconomics Supply and Demand

The world’s leading brands are accessing the Japanese departmental stores to sell their limited edition products. The sales of chocolates in the Valentine season pick up like anything. Primary Economic Elements The soaring demand for chocolates in Japan near the Valentine season presents a positive opportunity for the local and international Chocolatiers. It is not that the Japanese are particularly fond of chocolates. In general, the Japanese are not avid chocolate fans and their panache for the local delicacy “Wagashi” does tend to have precedence over chocolates. However, the Valentine’s-Day celebrations are a different thing. The contemporary Japanese youth closely associates the Valentine season with love and romance and the...
3 Pages(750 words)Essay

Demand and Supply Analysis

... in the US (McEachern, 2011). 2. Fig. 2: Tax effect on demand and Supply 3. 4. 5. 6. 7. 8. 9. 10. 11. Before taxation is imposed on the commodity, the equilibrium quantity is Qe while the equilibrium price is Pe. Tax has the tendency of normally increasing prices of commodities as well as production costs. With our case this is no exception since with the imposition of tax, the consumer’s price is raised to Pc while the producer’s price is at Pp. With taxes supply curve shifts to the left and this gives the variances in the prices (Tucker, 2008). The impact of taxation is that the prices are increased and therefore consumers will buy less. At the high prices, producers will also not be willing to produce more since taxation has also lead...
5 Pages(1250 words)Essay

Demand and supply theory

Thus, for the exchange of interests (expressed in terms of goods and services) to occur, demand and supply has to exist, but at some costs. From the field of academia to industrial circles, the basic premises of supply and demand are integrated into the daily actions of the society. To be sure, the theoretical mastery of economics depends much on the understanding of the theory at hand (Gandolfi, Gandolfi, and Barash 5-6). The theory of demand and supply is, therefore, an organization principle that coordinates the production of goods and services (in quantities, often referred to as output) to satisfy societal needs through the market (price) mechanism. Intuitively, the price mechanism functions in a perfectly competitive enviro...
4 Pages(1000 words)Term Paper

Supply and Demand

... Supply and Demand Supply and demand refer to an economic theory of determining prices in a market. The theory asserts that in a competitive market, the unit cost for a specified product will differ until it remains at a position where the amount needed by customers will be equal to the amount supplied by producers, leading to an economic equilibrium for quantity and price. There are four primary laws of supply and demand. First, if demand rises and supply remains unaffected, there will be a shortage causing a higher equilibrium cost. Second, if demand lessens and supply remains unaffected, there will be a surplus causing a lower equilibrium cost. Third, if demand remains unaffected and supply rises, there will be surplus causing...
3 Pages(750 words)Term Paper

Supply & Demand

Supply and Demand: An Analysis Although one might be quick to assume that the food and beverage industry, specifically the fast food industry, is one that has a relatively inelastic level of supply and demand, this is only partially true. As will be detailed within this short analysis, there are a number of factors that work on a systemic and local level to differentiate the levels of supply and demand so that even though they may not make wild swings in movement, they are nonetheless nearly continuously in flux. Accordingly, the following analysis will present an argument for the way in which supply and demand is fundamentally shifted within the student beverage industry at the moment in time in which the risk of salmonella outbr...
3 Pages(750 words)Article

Laws of Supply and Demand

... for pricing decisions, they are only a starting point, with market conditions and other factors usually determining the most profitable price" (Gale, Cengage Learning, 2007, p.262). The laws of supply and demand and their associated curves are the instruments that economists employ to determine a price that will maximize profit. Key Points An important factor that impacts the law of supply and demand is that the law is reactive to the market. As was illustrated in the Atlantis apartments, raising prices would increase the revenue, but at some level the demand would drop. Likewise, if the prices rose and suppliers built more apartments the supply would reach saturation and there would be a surplus of units. The demand and supply would react...
4 Pages(1000 words)Essay

Supply and Demand

...Demand and Supply Response to question A Elasti of demand is responsiveness of the demand of a good to the changes in other economic variables (Ferguson, 1972). As such, elasticity of demand is important since it helps to determine the potential change in demand due to variation in prices. In addition, understanding elasticity helps policy makers and businesses to examine the possible market impact when there is an adjustment in the consumer purchasing behaviors. It should be noted that, if a small price change is accompanied by a big change in the amount of quantity demanded then the commodity is said to be elastic while for a case where a large price change is accompanied by a small change in the amount of quantity demanded...
2 Pages(500 words)Essay

Demand & Supply

... up. Along with the demand in the housing properties, the demand for housing rental is also increasing simultaneously. The essay looks into the different aspects of demand and supply of housing and how the prices change in responses to the changes in the demand for properties for residence. The first part of the essay makes a general discussion of the theories underlying the demand and supply for a commodity. The later part looks at the various aspects of the theories applied to this article under consideration. Relevant figures have been provided to support the essay. General Discussion on demand and supplyLaw of demand The quantity demanded is the amount of product that the consumers are willing to pay at the market determined price...
5 Pages(1250 words)Essay

Supply and Demand

...Effects of Natural Calamity on Demand and Supply World events, for instance, drought and floods, have affected demand and supply trends in free markets tremendously. A notable example is floods that occurred in Pakistan (2010). As a consequence, there was increased pricing of cotton. Thus, it was attributed to the drastic reduction in supply; which subsequently led to increase in equilibrium pricing. The event in Pakistan had a shift on its supply curve, but did not affect the demand curve. However, there also exist incidents where change on the demand curve does not affect the supply curve (Krugman, Wells, & Graddy, 2013). The law of demand in economics states that with all aspects (tastes, expectation, and income) held constant; highly...
1 Pages(250 words)Essay

Scarcity, Choice and Opportunity Costs

... them. Scarcity is defined as that realistic condition in which the resources are limited and that in return prevents human wants from being satisfied to the extent which is desired. [Ext11]. This is the point where the economic problems formulate and the people in need of these resources are required to make choices between them. Scarcity of resources builds on their values and this in return favors those in demand of the resources. In other words, scarcity is what drives the economy. [Ext11]. Economic scarcity is subjected to the demand of resources and how limited those resources actually are. These functioning together are what formulate the “Principle of Scarcity”. This law states that if the desire for a limited resource is in excess...
6 Pages(1500 words)Term Paper
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic Impact of Scarcity and Choice on the Laws of Supply and Demand for FREE!

Contact Us