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.

Supply, Demand and Equilibrium Price - Essay Example

Comments (0)
Summary
The three situations which Mrs. Acres can follow can be represented by the following economic analysis. The first choice that she has is to maintain the current production and to increase the prices for the excess supply to dampen. We can represent the above situation diagrammatically…
Download full paper
GRAB THE BEST PAPER
Supply, Demand and Equilibrium Price
Read TextPreview

Extract of sample
Supply, Demand and Equilibrium Price

Download file to see previous pages... She does nothing but allows the market forces to increase the prices. This way the market demand curve will move from D to D2. A new equilibrium will now be formed as consequence where Supply curve meets D2 curve. At this stage the quantity will be great than the initial equilibrium quantity demanded will be 8000 and the prices will be greater $4.5 depending on the strength of the market demand. Some of the increased demand will be absorbed by the increase in price and equilibrium quantity supplied to the market will remain 8000 pies. This will result in increase in revenue for Mrs. Acres and consequently the increase the profits. Therefore, Mrs. Acres will choose this option if other options are not yielding better results than this one in terms of profits and revenue. However, by choosing this option her position will be vulnerable in the long-run and she can expect to lose in the broad perspective. In the long-run, high prices will encourage competition to enter the market and take some of the market share by keeping prices lower than competitors. As a result of this, in the long-run, her quantity supplied will be less than 8000, as charging high price will result in market share being lost to consumers. Similarly, as a result her sales may also experience a negative trend and she may lose out in the long run by raising prices. In other words, after the initial gain of increased revenue followed by increased, prices she may end up inviting a lot of competition to the industry and may lose out in the long run. The price of the pies will decline and come back to the normal equilibrium price of $4.5. In the long-run, the equilibrium price and quantity will be different because new companies can enter the market, whereas in the short-run, no new firms can enter the market. As a result of this long-run effects of this will be different than short run effects.


Case 2: Mrs. Acres decides to increase supply to meet additional demand











Case 2: Mrs. Acres meets the Market Demand
In this option suppose, the initial quantity is again 8000, represented by the label q1 on the diagram at a place where demand and supply meet. However, in order to meet the demand, Mr. Acres decides to increase the staff and in turn the supply. This will mean that there will be not increase in the price but the quantity demanded will now rise to q2, which is greater than 8000 pie. In the long-run, her sales and price will remain constant depending on the market trend and depending on the type of competition that exist in the market. However, since she is meeting demand there is no room for competitors to enter the market unless they come up with an extraordinary product. Therefore, by choosing this option she is discouraging the competition in the market which is going to keep her profits and revenues constant in the long run also and she may continue to enjoy the success in the long-run also. And the best thing here is that she will have to share profits with no one like she has to do in the option 3. Here, in the long-run, no new company can enter the market because there is no space in the market as Shelly Acres is operating under the efficient conditions of both allocative and productive efficiency as a result in the long-run, there will be no other effect and short-run conditions will prevail. If the ...Download file to see next pagesRead More
Comments (0)
Click to create a comment or rate a document
CHECK THESE SAMPLES - THEY ALSO FIT YOUR TOPIC
How equilibrium occurs using the aggregate supply (AS) and aggregate demand (AD) framework
The aggregate demand curve reflects price levels for goods and services produced domestically and which consumers, government, foreigners and businesses are willing to purchase. It slopes downwards to the right with the decrease in price levels with the increase in demand.
14 Pages(3500 words)Essay
Demand and Supply Paper
While supply refers to the amount of goods sellers, are willing and are able to bring into the market at any one given time (Brown 2010). This is at the current prices in the market. This brings in the fact that the market has two major players. The buyers and sellers.
3 Pages(750 words)Essay
Demand & Supply
Ceterus paribus is an omnibus assumption and holds all other factors which might influence consumer's demand as constant for the purpose of analysis. These factors may include income of the consumer, tastes of the consumer, impact of fashion and style, peculiar consumer characteristics like miserliness, scarcity of good and other choice patterns in consumer behaviour.Under these assumptions the price and quantity demanded are shown as inversely related and the graphical representation of consumer data in this scenario results in a downward sloping demand curve.
2 Pages(500 words)Essay
Increased Labor Demand and the Equilibrium Wage
400). In other words, in a state of labor market equilibrium, employers have hired as many workers needed to render the value of the marginal product equal to wage. This delicate balance among supply, demand, wage and marginal production value, though, is subject to market changes that shift the worth of the factors involved, and thereby disrupt the equilibrium.
2 Pages(500 words)Essay
Supply and demand: markets, prices and price setting
The basic cost concepts were easy to understand, but I did try the exercises related to marginal costs and to diminishing returns, which were harder to understand and apply. The exercises were useful in clarifying and applying these concepts.
2 Pages(500 words)Essay
Supply and demand and price elasticity
In simple words, market equilibrium is related to demand and supply. In order to understand the equilibrium situation in detail, let's first look at the meaning of the terms, demand and supply. Demand, simply, is a schedule or curve that shows the various amounts of a product that consumers are willing and able to buy at each of a series of possible prices during a specified period of time.
15 Pages(3750 words)Essay
Supply, Demand, & Equilibrium
Using real world example, professional sports players are paid much higher than farmers, factory workers, engineers, and teachers even though all of them are generally in competitive markets. In order to assess this situation, this paper will
2 Pages(500 words)Essay
Case- 2 Supply and demand: Markets, Prices and price setting
At this juncture, we assume that there is no control or administration by government in the production, supply or distribution of milk. Milk is produced, marketed or traded in the totally
4 Pages(1000 words)Essay
Demand & Supply
Experts are of the opinion that in order to bring sustainability in the market it is important for the builders to build quality homes so that the demand is adequately met by the builders. The lack of
5 Pages(1250 words)Essay
Supply and Demand
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,
1 Pages(250 words)Essay
Let us find you another Essay on topic Supply, Demand and Equilibrium Price for FREE!
Contact us:
+16312120006
Contact Us Now
FREE Mobile Apps:
  • About StudentShare
  • Testimonials
  • FAQ
  • Blog
  • Free Essays
  • New Essays
  • Essays
  • The Newest Essay Topics
  • Index samples by all dates
Join us:
Contact Us