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Microeconomics Summary - Term Paper Example

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Supply and demand can be considered as the backbone of the economy of the market. The amount which the market has to offer is called the supply. It means how much the suppliers can supply when the buyers pay a certain price…
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Microeconomics Summary

Download file to see previous pages... Demand relationship is the association between the amount demanded and the price it is demanded at. Supply and demand are expressed in terms of the price (J. R. Adil, 2006).
The force which distributes the resources is triggered by the correlation of supply and demand. The theories involved in market economy suggest that the supply and demand theory can distribute the resources in a highly efficient manner. To see how that happens we will study closely the laws of supply and demand.
According to the “Law of Demand”, considering all the other factors to remain constant, the price of a good is inversely proportional to its demand. If the price of a good is increased than less people would want it and if the prices are decreased then more people will want to buy the good. With the increase in price of a good or service, there is an increase in the opportunity cost of the purchase of that particular good or service and that is why less people buy that good. This will result in people not buying goods which will cause them to abstain from using goods which are more valuable to them. As shown in the graph below, the curve is a downward slope.
The curve of demand has three points on it which are A, B and C on it. On the curve, the relationship between price (P) and quantity (Q) is being directly represented at each point. So the quantity and price at point A will be Q1 and P1 respectively, and so on. The inverse relation between the price and quantity demanded is evident from the curve. At A the price is higher therefore the demand is lower whereas at C, the demand is higher and the price is lower (Economics Basics: Supply and Demand, 2003).
The law of supply exhibits those quantities which are sold at fixed prices similar to that in the “Law of Demand”, but the slope in the law of supply is upward. This means that the price and the amount supplied are directly proportional to each other. Higher the price higher will be the supply. ...Download file to see next pagesRead More
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