Demand-Supply Analysis of
Managerial Economics Assignment
Supply and demand is one of the most fundamental concepts of economics and it is the backbone of a market economy. It is defined as an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers (at current price) will equal the quantity supplied by producers (at current price), resulting in an economic equilibrium of price and quantity DEMAND: The term demand signifies the ability or the willingness to buy a particular commodity at a given point of time.
A, B and C are points on the demand curve. Each point on the curve reflects a direct correlation between quantities of Acer Laptops demanded (Q) and corresponding price (P). So, at point A, the quantity demanded will be Q1 and the price will be P1, and so on. The demand relationship curve illustrates the inverse relationship between price and quantity demanded. The higher the price of a good the lower the quantity demanded (A), and the lower the price, the more the good will be in demand (C). LAW OF DEMAND
Law of demand is an economic law, which states that the quantity demanded and the price of a commodity are inversely related, other things remaining constant.
Factors Affecting Demand
Price: Generally the relationship is negative meaning that an increase in price will induce a decrease in the quantity demanded. Income: A lower income means that there is less to spend in total, so people spend less on some—and probably most— goods. As individual’s incomes rise, they tend to buy more of almost everything, even if prices don’t change. Tastes or preferences: The greater the desire to own a good the more likely is people to buy the good. Tastes are based on historical, social and psychological forces. Consumer expectations about future prices and income: If a consumer believes that the price of the good will be higher in the future he is more likely to purchase the good now. If the consumer expects that his income will be higher in the future the consumer may buy the good now. In other words positive expectations about future income may encourage present consumption. Prices of Related Goods: When a fall in the price of one good reduces the demand for another good, the two goods is called ‘substitutes’. Substitutes are often pairs of goods that are used in place of each other, such as hot dogs and hamburgers. When a fall in the price of one good raises the demand for another good, the two goods are called ‘complements’. Complements are often pairs of goods that are used together, such as gasoline and automobiles, computers and software. Special Influence: They affect demand for particular goods. Traditional and religious festivals and events can influence the demand of certain goods, like Christmas tree is in higher demand in the month of December. The Demand Schedule and the Demand Curve
A demand schedule is the relationship between the price of a good and the quantity demanded. Demand curve, which graphs the demand schedule, shows how the quantity demanded of the good changes as its price varies. The downward-sloping line relating price and quantity demanded is called the demand curve. Because a lower price increases the quantity demanded, the demand curve slopes downward.
A demand curve is drawn holding many things constant, such as assuming that the person’s income, tastes, expectations, and the prices of related products are not changing. Economists use the term ceteris paribus to signify that all the relevant variables, except those are being studied at that moment, are held constant. The Latin phrase literally means “other things being equal.” The demand curve slopes downward because, ceteris paribus, lower prices mean a greater quantity demanded. SHIFTS IN THE DEMAND CURVE...
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