Supply & Demand, and Price Elasticity

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Supply & Demand, and Price Elasticity
All things in our society are connected in some way, for example, how humans relate to each other. Complex ideas and analysis are not without their own set of unique connections. The intricate theories of economics are a prime example of this connection. To gain an accurate understanding of how supply and demand are connected, and its role within the market, one must analyze the functions of each as separate entities, and how they relate to economics as a whole. To begin analysis, one must examine what causes change between supply and demand. Once this has been achieved, investigating how changes in price and quantity influence market equilibrium, and how the necessity of a good and the availability of substitutions impact price elasticity will need to be conducted. The final step will be to compare and contrast market systems and the role of an economist within these systems. In order to discover what causes change in supply and demand, people need to understand the definition, different forms, components, and principles. Supply is defined as the amount of product a producer is willing to provide or sell, while demand is the amount of product a buyer is willing to receive or buy. There are two forms of supply: individual and market. Individual supply is the amount of product offered at different prices at a given time by a seller. Market supply is the amount of the product in the marketplace. The components of supply are the price of the product, the price of input goods, the state of technology, taxes and subsidies, and expectations about the future market price. An example of a cause that would change supply is the change in the cost of supplies and resources: if the cost goes up, producers will decrease their supply. The law of supply is the amount of the products offered by the sellers, directly related to prices of all things being equal (ceteris paribus). There are two forms of demand similar to supply: individual and market. Individual demand is the quantity of the product or service that one plans to buy at different prices at a given time. Market demand is the sum of people’s demand in the marketplace. Just like supply, demand has its own determinants such as the price of the goods, the price of substitute goods, the price of complementary goods, tastes and preferences, a consumer’s income, and expectations about the future. An example of a cause that would affect demand is the change from a higher or lower income. This would cause an increase or decrease in demand. The law of demand is the quantity inversely related to the price, ceteris paribus. Oftentimes in supply and demand, pricing affects every aspect that goes along with it; if pricing stays stable, consumers will be able to purchase equal amounts of products. A family’s income creates a demand for the amount of products that are used on a weekly basis. When price increases, consumers tend to buy less of a particular good creating a demand curve. Depending on the consumer who notices pricing starting to rise, they will purchase extra goods to help them save money until the price lowers. This frequently affects the way things are sold in our local markets. If a change in demand exists, people will use substitute items because of cost. The use of a substitute item will shift the demand curve and will create a new demand curve with the substitute item taken into account. Additionally, prices change due to market value which impacts the consumer. Availability of certain goods helps keep prices low which influences market equilibrium because consumers will be able to purchase more goods. When a shortage of goods exists, this also affects the markets equilibrium because as prices go up, purchasing becomes less and the consumer only gets a portion of what they would normally pay for that good at the same price. The necessity of a good for a consumer can be determined by the following variables: price, substitution cost,...
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