Supply and demand are the starting point of all economic investigation. It is important to be able to level the two. Supply is the different qualities that a producer will make available to the market at different prices. Demand is the various quantities that a consumer is willing to buy at various prices. There are several reasons demand changes such as; income, preference, taste, changes and expectations in future pricing. The factors that affect supply would be prices and profit. Firms are profit motivated which can determine supply. In this assignment I will explain what happens to demand, supply, price and quantity demand with a few examples.
A scientific study shows that coffee contains some antioxidants. Antioxidants are widely used in dietary supplements and have been tested for the prevention of diseases such as cancer. This makes antioxidants a good that people want, which will increase the quantity demand for coffee. If we made assumptions and placed these assumptions on a model graph, we would get the demand curve. Lets name the price “P1” and the demand quantity “Q1”. If the price and quantity demand increase this does not affect the demand curve since “P1” and “Q1” are already apart of the demand curve. Anything that affects the buying decision, other than the product price, will shift the demand curve. Eventually the price of coffee will increase. If the price of coffee increases, this will lower the willingness to purchase the beverage. When the price rises, a consumer cannot afford to buy the product as often. Price changes affect the purchasing power.
“The demand for some goods increases, while the demand for others decreases. The supply of some goods rises, while the supply of others falls. As such events unfold; prices adjust to keep markets in balance.” (cite book) A prolonged drought in another country reduces its production of coffee beans. At the original price a shortage of coffee beans now exists and the market is no longer in...
References: Investopedia, Economic Basics: Supply and Demand: Retrieved February 18, 2011 from:http://www.investopedia.com/university/economics/economics3.asp
Roberts, Russell. (2007). "Where do Prices Come from?" Library of Economics and Liberty. Retrieved February 18, 2011 from:http://www.econlib.org/library/Columns/y2007/Robertsprices.html
Market Equilibrium and Applications and Supply and Demand handouts from Module 2.
Please join StudyMode to read the full document