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Economists assume all factors are held constant (ie do not change) except one – the price of the product itself. A change in a factor being held constant invalidates the ceteris paribus assumption. (Riley, 2006)
There is an income effect when the price of a good falls because the consumer can maintain current consumption for less expenditure. Provided that the good is normal, some of the resulting increase in real income is used by consumers to buy more of this product. (Riley, 2006)
There is also a substitution effect when the price of a good falls because the product is now relatively cheaper than an alternative item and so some consumers switch their spending from the good in competitive demand to this product. (Riley, 2006)
Firstly, there is a profit motive. Whether the increases in market prices (for example, after a surge in demand), it is more advantageous for companies to increase production. Signs of higher prices for companies that can increase profits by market demand. Production and cost: With increasing production, increasing production costs of a company, so a higher price is necessary to justify the additional production and cover the additional costs of production. New competitors enter the market: rising prices create an incentive for other companies to enter the market leading to increased supply.
The price where the demand and supply meet is known as equilibrium price or market price. This is the point where the buyers and sellers come together at a common point. In a market a good will always be traded at its market price as this maintains equilibrium between the supply and the demand. (Sloman, 2006)
The outward shift in the demand curve causes a movement (expansion) along the supply curve and a rise in the equilibrium price and quantity. Firms in the market will sell more at a higher price and therefore receive more in total revenue. Similarly a backward/inward shift creates the opposite
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a) Fig. 1: Demand and Supply curves 3. 4. 5. 6. 7. 8. 9. 10. 11. a) Demand and supply are equal at the points when equilibrium quantity is Q=200 units. It is also at this point when equilibrium price is also equal to P=200. This is as shown in the graph above.
Consumers are willing to purchase SUVs regardless of their price variations because they believe that larger and tough vehicles would protect them in an accident. However, gasoline prices can have an inverse effect on the demand of Toyota SUVs. To illustrate, the Toyota SUV market experienced significant sales declines in 2006 when gasoline price reached $3 a gallon.
Economists are in agreement that prices and quantities are descriptively the most observable attributes of individual interests that interact within a market structure to facilitate a mutually beneficial exchange as envisaged by Adam Smith (Friedman 145).
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.
The rising costs are an outcome of the general level of inflation in the countries of Europe. Many big companies, particularly those, that are conducting operations across several countries in the world are now carrying out researches aimed at weighing the probable influence of the theatrical increase in prices of crude oil on their businesses (Wilson, 1975).
On the other had human beings have unlimited wants. In a free market economy, the forces of demand and supply determine the market equilibrium and the prices are determined by the price system. When a country or a company has a comparative advantage compared to the other countries, producing a same good, the country which has the advantage can supply the good at a cheaper rate compared to the other countries.
The core intentions of any business venture are to supply the market with goods and services in the right quantities of demand;maximize profit and explore measures to necessitate growth and expansion.The process of growth and expansion is purely determined by the business’ performance over a given period of time;its ability to handle micro economic environment and match them with the macro economic factors,and the overall behavior and response of the market.Market forces on the other hand determine the quantity to be produced and supplied by manufacturers and retailers respectively,and depending with the industry that the firm is in, the overall business environment can be explicitly define
Elasticity of demand has also been explained in the paper.
In economics, supply and demand are two important concepts that define the operations of a business. Demand for a commodity refers to the availability of ready market or
These are prices, speculation, government policies, tastes and preferences, and changes in income.
Supply and demand in economics are two concepts, which carry a lot of significance as they determine the