Supply and Demand Paper
SUPPLY AND DEMAND
Monica Minj SUID: 1834386 Seattle University
Supply and Demand
Supply and Demand is the most fundamental concept in economics and it plays a vital role in determination of price of goods in the market. Supply is the ability of a market to offer a product at a particular price and demand is the quantity of a product or service demanded by the people at a given price. The correlation between the price and quantity supplied is known as the supply relationship whereas the relationship between the price and quantity demanded is known as the demand relationship. To analyze the concept of Supply & Demand, we assume that we have a perfectly competitive market, which is a market where we have so many buyers and sellers for a product that no single buyer or seller can affect the price in the market. From economics point of view, the businesses have to see the demand and supply as two forces that act together to determine the price for various goods.
Law of Demand
Law of demand states that, higher the price of goods, lower the demand for that good will be. When the price of a good goes up the quantity of that good purchased by the buyers goes down as it prevents them from buying other goods that they could have bought. The demand curve is a negative slope as shown in the diagram below.
D1, D2 and D3 are three points on the demand curve. From this curve we can clearly see that if the price of the good is increased, the quantity demanded will go down(D1), and when the price is decreased the quantity demanded will increase(D3) which makes the price and quantity demanded inversely proportional to each other.
Law of Supply
Similar to law of demand, the law of supply shows the relationship between price and quantity supplied. But unlike demand, supply has a positive slope as shown in the diagram below. This means that sellers are willing to supply more goods with increase in price as it brings them greater revenue. In other words, higher the
Monica Minj SUID: 1834386 Seattle University
Supply and Demand
Supply and Demand is the most fundamental concept in economics and it plays a vital role in determination of price of goods in the market. Supply is the ability of a market to offer a product at a particular price and demand is the quantity of a product or service demanded by the people at a given price. The correlation between the price and quantity supplied is known as the supply relationship whereas the relationship between the price and quantity demanded is known as the demand relationship. To analyze the concept of Supply & Demand, we assume that we have a perfectly competitive market, which is a market where we have so many buyers and sellers for a product that no single buyer or seller can affect the price in the market. From economics point of view, the businesses have to see the demand and supply as two forces that act together to determine the price for various goods.
Law of Demand
Law of demand states that, higher the price of goods, lower the demand for that good will be. When the price of a good goes up the quantity of that good purchased by the buyers goes down as it prevents them from buying other goods that they could have bought. The demand curve is a negative slope as shown in the diagram below.
D1, D2 and D3 are three points on the demand curve. From this curve we can clearly see that if the price of the good is increased, the quantity demanded will go down(D1), and when the price is decreased the quantity demanded will increase(D3) which makes the price and quantity demanded inversely proportional to each other.
Law of Supply
Similar to law of demand, the law of supply shows the relationship between price and quantity supplied. But unlike demand, supply has a positive slope as shown in the diagram below. This means that sellers are willing to supply more goods with increase in price as it brings them greater revenue. In other words, higher the