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A Strong Existence of the Law of Demand - Research Paper Example

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The paper 'A Strong Existence of the Law of Demand' presents an inverse relationship that exists between quantity demanded by customers and the price of products and/or services. If there is no scarcity of resources in a given market, the price of a commodity may fall rapidly…
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A Strong Existence of the Law of Demand
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Download file to see previous pages Price rationing can also be observed in this case due to a fact that the demands of human-beings are termed to be never-ending or unlimited. However, on the contrary, resources of goods are limited. Thus, price rationing will be strongly evident (Maddala, 2004).
Conclusively, from an economic point of view, it can be stated that resources will be efficiently used when there is no scarcity. It is due to the fact that a strong existence of the ‘Law of Demand’ and the price rationing is likely to regulate the use of these resources.
In a similar context, price mechanism is referred to as determining prices of goods and/or services with the influence of various forces of demand and supply in a given society. The theory assumes to have no interference in terms of external factors to society. According to a theory of economics, producers always tend to produce those commodities which can be sold in the market at a high price and apply those production techniques which are cost-efficient in order to maximize their profits. Similarly, customers tend to favor products that are less costly and thus it determines the price of the commodity in a given market. Thus, the price mechanism states an interdependent relationship between the self-interests of producers and buyers. In other words, the actions of producers are regulated by the actions of consumers and vice-versa. This efficiently determines the quantity of production and price of a commodity, solving the three fundamental problems of society (Jain & Khanna, 2007).
However, there are a few defects that exist in a market which provides rise to various limitations of price mechanism theory. They can be identified as, market competencies, inefficient or wasteful productions, external influences, the indolence of commodities, uneven circulation of income, and others. The aspect of ‘opportunity cost’ can be well identified in this case. It is referred to as the cost of a product that is given up by a buyer to consume something else. ...Download file to see next pagesRead More
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