Eco 531 Week 2

Topics: Supply and demand, Investment, Security Pages: 4 (1514 words) Published: May 27, 2013
United States Treasury Bonds

United States Treasury Bonds

The Law of Demand and The Determinants of Demand
The law of demand is defined as “the functional relationship between price of a commodity and the quantity demanded of the same or the demand for a commodity at a given price is more than what it would be at higher price and less than what it would be at a lower price” (Akrani, 2009). United States Treasury Bonds are a product that fluctuates just like any other product or service. The demand of treasury bonds increase and decrease as a result of changes in individual wealth, bond returns or bond pricing. As individuals gain income or pricing of yields increase individuals are more likely to purchase treasury bonds to increase or sustain his or her wealth. The determinants of demand, however, are factors that affect treasury bonds without changing the cost. Determinants of a treasury bond are individual income and alternative financial options. The determinants do not affect bond pricing, but affects the wealth of individuals purchasing the treasury bonds. Personal income is one of the major determinants of demand when focusing on treasury bonds. When personal wealth or income decrease individuals cannot purchase treasury bonds because funds are spent on sustaining the household. Other financial options such as stocks, other bonds or saving accounts are a determinant of demand to treasury bonds. These financial options may be cheaper or more affordable than purchasing a treasury bond. The demand for treasury bonds increase because of individual wealth and potential profit, but decreases due to determinants of demand, which are also individual wealth and alternative financial options.  Law of Supply and The Determinants of Supply

According to McConnell, Brue, and Flynn, the Law of Supply states “as price rises, the quantity supplied rises; as price falls, the quantity supplied falls” (2009, p. 51). The case is no different with United...
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