Microeconomics and the Law of Supply and Demand
Autor: Gabriela8585 • April 13, 2016 • Essay • 1,421 Words (6 Pages) • 853 Views
Microeconomics and the Law of Supply and Demand
Gabriela Robles
ECO/365
March 23rd, 2016
Esperance Namugabo
Microeconomics and the Law of Supply and Demand
Supply and demand is the basis for most economic theorems. It provides the answer to almost any economic based question. Microeconomics is the economic reasoning or trends deduced from the supply and demand choices of individuals and firms, which then becomes an analysis of the whole economy. In other words, microeconomics studies how individual choice to demand or supply is influenced by economic forces (Colander, 2013). Assuming all factors remain constant, we have consistent curves in supply and demand. But as economic forces act on a market, so do they create changes or shifts in the supply and demand of a good or service. We can calculate these changes to determine an equilibrium price, or the point at which demand and supply curves will meet. Above this meeting point, there is no demand nor profit to be gained (Khan, 2015).
For a given market good, such as the apples in the Khan video in this study, the equilibrium balances the supplied quantity necessary to meet the demand for the apples. Equilibrium also determines if a supplier will make the most revenue while avoiding losses. If the supply exceeds the demand of apples, it will result in a loss. Understanding and evaluating equilibrium makes for a successful business and a thriving market.
A shift in the demand curve is to the right or left of the equilibrium price. Colander (2013) determines the role of supply and demand as it influences decision making when he says “supply states that quantity supplied is positively related to price, the slope of an equation specifying a supply curve is positive (p. 116). The equation used to determine supply and demand is: Qs = -5 + 2P.
The Apple Market
The Khan video demonstrated the demand and supply curves for apples and how they shift as certain economic factors influence them. The graphs also indicate the equilibrium price and its shift as economic factors influences it. Specific factors mentioned in the video which influenced equilibrium price were technological improvements, the price of inputs, and the existence of suppliers of related goods.
The first graph assumes that a new technological development has affected the apple market - a certain type of disease resistant apple has been invented. In this situation, the supply curve would shift to the right as the apple producers quickly supplied more to meet the increasing global demand for these awesome apples. Based upon the Laws of Supply, the increase in supply or quantity supplied means there will be a subsequent increase in price (Colander, 2013). In other words, the suppliers are incentivized to supply more because they see the opportunity to earn more based upon market prices. The equilibrium price then lowers in the graph.
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