Supply and Demand Laws

Understanding how and why the economy functions as it does takes a few concepts that should be explained.   The law of demand is explained as   “when the price of a product falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded of the product will decrease” (Hubbard & O’Brien, 2010, p. 67).   The law of supply states that, “increases in price cause increases in the quantity supplied, and decreases in price cause decreases in the quantity supplied” (Hubbard & O’Brien, 2010, p. 75). Finally,   market equilibrium is “a situation in which quantity demanded equals quantity supplied” (Hubbard & O’Brien, 2010, p. 78).  
Variables that cause the demand to increase are income, prices of related goods, tastes, population and demographics, and expected future prices (Hubbard & O’Brien, 2010, p. 68).   When consumers increase the amount of a product they wish to purchase at a particular price, the market demand curve shifts to the right.
Income is the earnings consumers have available to spend and their willingness to spend it.   Prices of related goods are substitutes for goods and services that can be used for the same outcome.   Tastes can sway a customer’s decision into purchasing something, which can be influenced by advertising.   Population and demographics influence demand based on age, race, gender, and location of the consumers.   Expected future prices are based on when and what the customer decides to purchase.  
Starbuck’s opened their first coffee shop in Seattle in 1971 selling gourmet coffee and beans. In 2004, the company had 1,344 stores worldwide.   Starbuck’s was a novelty, when the economy was good, some would make daily purchases as they had the money and were willing to spend it on coffee.   The store became more popular because of advertising and the prestige of its consumers.   As population increased, the demand for the product also increased, causing the company to build more shops and spread... [continues]

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