Supply and Demand and Price Elasticity Paper

Supply and Demand and Price Elasticity Paper

ECO/212

The laws of economics control the decisions made in everyday life. The products people decide to purchase, and do without, are controlled by the laws of supply and demand. There are different factors that control the shifts and movements of supply and demand. The desire for a product is most closely related to price, and these desires bring markets towards equilibrium. When something becomes more expensive the demand generally falls. Factors necessity of a good, complimentary and substitute items, all play roles in price elasticity. It is the job of an economist to foresee market flow and predict these changes. The necessity of a good and the availability of substitutions affect price elasticity.

Supply is the quantity of a good produced, and demand is how much of the good consumers are willing to buy at a given price. The affects of supply and demand is analyzed in a group, known as a market, of buyers and sellers of a certain good or service. The group determines what the demand is, and the sellers determine the supply. When looking at a product the group needs to decide if the product is something that will sell at a high price if they decide to produce large quantities. Some other issues that cause changes and shifts in supply and demand are; competitive markets, quantity demanded by consumer, quantity supplied by producer. A good example is the housing market. In today’s housing market the demand is low and the supply is high due to all the foreclosures and unemployment.

Analyzing economic theories leads to understanding market equilibrium. The necessity of goods, in relation to the availability of substitutions, determines the goods elasticity. Market equilibrium is affected when there is a shift in demand. When this occurs the changes in the current conditions of demand will shift supply. This shift influences the supply of the good and the equilibrium price. When there is no...