Transcript Law of demand

Economics
I have chosen those three topics
for: my short report:
- Law of demand
- Law of supply
- Law of demand and supply
Law of demand
In economics, the law of demand is an
economic law that states that
consumers buy more of a good when
its price decreases and less when its
price increases.
Mathematical expression of law
of demand
Qx = f(Px)
- Qx is the quantity demanded of x goods
- f is the function of independent variables
contained within the parenthesis
- Px is the price of x goods.
Let's consider an example
If the price of pizza rose to $15 per piece, you
would buy less pizza. If the price of pizza fell to
$0.15 per piece, you would buy more. Because the
quantity demanded falls as the price rises and
rises as the price falls, we say that the quantity
demanded is negatively related to the price.
Chart
Law of supply
In economics, the law of supply is
the tendency of suppliers to offer
more of a good at a higher price.
Mathematical expression of law
of supply
QxS = Φ (Px Tech, Si, Fn, X,........)
- Qxs = Quantity supplied of commodity x by the
producers.
- Φ = Function of.
- Px = Price of commodity x.
- Tech = Technology.
- S = Supplies of inputs.
- F = Features of nature.
- X = Taxes/Subsidies.
Let's consider an example
The price of pasta is one determinant of the quantity
supplied. When the price of pasta is high, selling pizza is
profitable, and so the quantity supplied is large. As a
seller of pasta, you work long hours, buy many pasta
machines, and hire many workers. By contrast, when the
price of pasta is low, your business is less profitable, and
so you will produce less pasta. At an even lower price, you
may choose to go out of business altogether, and your
quantity supplied falls to zero.
Because the quantity supplied rises as the price rises and
falls as the price falls,we say that the quantity supplied is
positively related to the price of the good.
Chart
Law of demand and supply
Supply and demand is an economic model of
price determination in a market. It
concludes that in a competitive market, the
unit price for a particular good will vary
until it settles at a point where the quantity
demanded by consumers (at current price)
will equal the quantity supplied by
producers (at current price), resulting in
an economic equilibrium of price and
quantity.
4 types of laws of demand and
supply
- If demand increases and supply remains unchanged, then it
leads to higher equilibrium price and quantity.
- If demand decreases and supply remains unchanged, then it
leads to lower equilibrium price and quantity.
- If supply increases and demand remains unchanged, then it
leads to lower equilibrium price and higher quantity.
- If supply decreases and demand remains unchanged, then it
leads to higher price and lower quantity.
Let's consider an example
Imagine that a special edition CD of your favorite band is released for $20.
Because the record company's previous analysis showed that consumers will
not demand CDs at a price higher than $20, only ten CDs were released
because the opportunity cost is too high for suppliers to produce more. If,
however, the ten CDs are demanded by 20 people, the price will subsequently
rise because, according to the demand relationship, as demand increases, so
does the price. Consequently, the rise in price should prompt more CDs to be
supplied as the supply relationship shows that the higher the price, the higher
the quantity supplied.
If, however, there are 30 CDs produced and demand is still at 20, the price
will not be pushed up because the supply more than accommodates demand.
In fact after the 20 consumers have been satisfied with their CD purchases,
the price of the leftover CDs may drop as CD producers attempt to sell the
remaining ten CDs. The lower price will then make the CD more available to
people who had previously decided that the opportunity cost of buying the
CD at $20 was too high.
Chart
The end