Economic 111

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Week two of class has been dedicated to discuss and explain how supply and demand determines the price and quantity of goods and services within a competitive market structure; examine how normal, inferior, substitutes and complement goods affects the supply and demand structure; and explain how and why surplus and shortages can occur with various goods and services. There are two parts for this assignment that covers material in chapter four.
Part one asks the following: Many industries have gradually transitioned from effective products (they work / operate) to efficient products (they work/ operate, and they minimize inputs to maximize outputs). Over the past five years, the real estate industry has experienced some major shifts of demand and supply with residential housing. As a result of these shifts, price and quantity have been affected. Please explain how demand and supply of residential housing has affected the price and quantity for both buyers and sellers.
Competition is important to supply-and-demand. The number of buyers and sellers in the market at any time can control the market. Buyers compete against each other and the price rises, sellers compete against each other and the price drops. Equilibrium happens when no one has an incentive to offer higher prices or to accept lower offers. Perfect competition happens when there are so many buyers and sellers that no one alone can affect the price. In contrast, if a single buyer or seller can influence the price there is imperfect competition.
Demand is the willingness and the ability of a buyer to pay. It can be influenced by the price of the good; income and wealth; prices of substitutes and complements; population; preferences (tastes); and expectations of future prices. Supply is not just the quantity of a good or service and the willingness and ability of sellers to produce and sell it.
According to The Law of Demand, when the price of housing rises and everything else remains the same, the



References: Basic Economics. (2007-2011). Supply and Demand. Retrieved from http://www.basiceconomics.info/supply-and-demand.php Mulligan, CaseyB.(May 11, 2011). Supply and Demand (in that order. Retrieved from http://caseymulligan.blogspot.com/ McEachern, W.A. (2010). Econ Micro 2 (2010-2011 ed.). Ohio: South-Western Cengage Learning. The New York Times. (2011). About.com, Economics. Retrieved from http://economics.about.com/

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