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Supply And Demand And Price Elasticity Paper

1041 words - 4 pages

Supply and Demand and Price Elasticity PaperPricing, supply, and demand are the foundation of the economic structure. This paper is intended to highlight the affects of each. The changes in supply and demand will be looked at along with how changes in price and quantity influence market equilibrium. It will also look at how the necessity of a good and the availability of substitutions affect price elasticity. Finally, it will compare and contrast market structures and the role that economics plays within these systems.Supply and DemandSupply and demand are the root concepts of economic analysis since economics is basically concerned with a result and how the result is achieved. The quantities of goods or services demanded satisfy the requirement for the ends. These concepts are relative and are interchangeable. Supply and demand are opposing concepts, in that demand is an inverse or falling function of the price whereas supply is a direct or rising function. Although both supply and demand are important functions, it is necessary to establish equilibrium between them. This would mean reaching a place where there is an equal point or agreement between the consumer and the producers. This can only be attained when the quantities demanded and the quantities supplied are at an equal point, when there is no competition between buy and sell.There are many factors that influence changes in supply and demand. The most prevalent would be pricing. When a product is priced to high, the demand for such product will eventually decrease. Conversely, under pricing could cause the demand to sky rocket and create a problem with maintaining supplies. Other factors would include lifestyles of individuals. This would include religious beliefs and the economics of where an individual lives.Changes in price and quantity influence market equilibriumThe way market equilibrium is influence is basically when the buyer and supplier can come to an agreement on what the right price and quantity are. It influences the market equilibrium by "Any change that measures the quantity demands at every price, it shifts the demand curve to the right and is called an increase in demand" (Mankiw, 2007). If they have changes to price and quantity during anytime, it will shift the curve and increase or decrease the demand which will end up changing the equilibriumPrice ElasticityElasticity is a measure of the responsiveness for quantity demanded or quantity supplied to one of its determinants. Demand or supply of a good is said to be elastic if the quantity demanded or supplied responds substantially to changes in price. Demand or supply is said to be inelastic if the quantity demanded or supplied responds only slightly to changes in price (Mankiw, 2007).Availability of close substitutes will affect the elasticity of a good. If there are many close substitutes goods are called elastic. Tomlinson (2007) uses the example of soda pop. If one supplier of soda raises their prices, people will...

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