StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Excess Demand and Supply - Coursework Example

Cite this document
Summary
This coursework "Excess Demand and Supply" discusses demand that refers to the buyer’s willingness and ability to purchase goods while supply refers to the seller’s willingness and ability to provide goods at different price levels (Dolan & Lindsey, 44)…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER94.5% of users find it useful
Excess Demand and Supply
Read Text Preview

Extract of sample "Excess Demand and Supply"

Demand and Supply Analysis Demand refers to the buyer's willingness and ability to purchase goods while supply refers to the seller's willingness and ability to provide goods at different price levels (Dolan & Lindsey, 44). According to Paul Gregory, the law of demand states that there is an inverse relationship between the price of a good and the quantity demanded. So, if the price falls, quantity demanded will rise and if the price rises demand for that certain good will decrease. However, the case is different if we put supply in the picture. Market equilibrium exists when the quantity supplied is equal to the quantity demanded at a given price ("Excess Demand and Supply"). The diagram below shows the supply and demand curve for good X and the equilibrium price and quantity. Figure 1.Equilibrium 80 S 70 60 Price of Good X 50 40 30 20 10 D 0 1 2 3 4 5 6 7 Quantity of Good X In diagram above, the quantity of supply and demand are equal at price 50. If the supply and demand curve won't move, the market price of Good X will not change. If the demand for good X will increase, the demand curve will shift to the right or will exhibit an outward shift. Figure 2. Increase in demand 80 S 70 60 Price of Good X 50 40 30 20 D2 10 D1 0 1 2 3 4 5 6 7 Quantity of Good X An increase in demand will cause a movement along the supply curve which will result to the rise of equilibrium quantity and price. With the new demand curve, supply and demand of good X equals to 5 at price 60. Price and quantity both increased. This means that an increase in the demand of good X made firms in the market to sell good X at a higher price. However, an increase in supply will show another different result. This is shown in Figure 3. Figure 3. Increase in demand and supply S2 80 S 70 60 Price of Good X 50 40 30 20 D2 10 D1 0 1 2 3 4 5 6 7 Quantity of Good X With the new demand and supply curve, D2 and S2, the quantity of good X decreased to about 3.75 units while the price increased by about 78 units. This just proves the law of demand that as the price of good X increases, the quantity demanded decreases. There are a lot of reasons that can cause an increase in demand and supply. Increase in demand can be caused by increase in the consumer's income or wealth, rise in the price of substitutes, fall in the interest rate, and fall in the price of complements. An increase in supply, on the other hand, can be caused by cheaper cost of production, government subsidies, improvement in production technology, and the entry of new suppliers to the market ("AS Markets and Market Systems"). On the other hand, a decrease in supply has a different effect. This is shown in the figure below. Figure 4. Decrease in supply 80 S 70 S2 60 Price of Good X 50 40 30 20 10 D1 0 1 2 3 4 5 6 7 Quantity of Good X If the demand curve will remain the same and the supply curve shifts downward, the price of good X will decrease to 40 units while the quantity of good X will increase to approximately 4.75. Again, this conforms to the law of demand. Decrease in the price of good X resulted to an increase in the demand for it. This means that more people will be willing to consume good X because of its lower price. However, the picture will not be the same if the demand curve increases and the supply curve decreases. This is shown in Figure 5. Figure 5. Decrease in supply and increase in demand 80 S1 70 S2 60 Price of Good X 50 40 30 20 D2 10 D1 0 1 2 3 4 5 6 7 Quantity of Good X As you can see, there is a decrease in supply and increase in demand. This resulted to a decrease in price form 50 to approximately 42 units and an increase in the quantity of good X from 4 units to about 5.25 units. The result is different when demand remained constant in the previous graph. A decrease in supply that goes with an increase in demand tends to lower prices and increase the quantity demanded of goods. Works Cited Riley, Geoff. "AS Markets and Market Systems", Tutor2u, September 2006. 29 November 2008. "Excess Demand and Supply", Open-Site, 27 November 2008. Dolan, Edwin and David Lindsey. Economics. 6th ed. Orlando: The Dryden Press, 1991. Gregory, Paul. Essentials of Economics. 6th ed. New York: Addison Wesley, 2005. Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“FUNDAMENTALS OF ECONOMICS Using diagrams, explain what happens to Coursework”, n.d.)
Retrieved from https://studentshare.org/miscellaneous/1500446-fundamentals-of-economics-using-diagrams-explain-what-happens-to-price-and-quantity-when-demand-increases-and-supply-increases-and-when-supply-falls-and-demand-increases
(FUNDAMENTALS OF ECONOMICS Using Diagrams, Explain What Happens to Coursework)
https://studentshare.org/miscellaneous/1500446-fundamentals-of-economics-using-diagrams-explain-what-happens-to-price-and-quantity-when-demand-increases-and-supply-increases-and-when-supply-falls-and-demand-increases.
“FUNDAMENTALS OF ECONOMICS Using Diagrams, Explain What Happens to Coursework”, n.d. https://studentshare.org/miscellaneous/1500446-fundamentals-of-economics-using-diagrams-explain-what-happens-to-price-and-quantity-when-demand-increases-and-supply-increases-and-when-supply-falls-and-demand-increases.
  • Cited: 0 times

CHECK THESE SAMPLES OF Excess Demand and Supply

Efficient Market Hypothesis in Explaining the Overall Functioning of the Financial Markets

The paper "Efficient Market Hypothesis in Explaining the Overall Functioning of the Financial Markets" identifies the weak, semi-strong and strong form of efficiency and implications of the data on the asset prices.... The market participants form rational expectations about the future and present market prices are the best guess of the future....
8 Pages (2000 words) Essay

Economic of the Container Shipping

n a similar context, the underlying report will shed light on the basic demand and supply and related factors for the shipping industry.... Therefore, increase in demand have balancing impact on the imbalance between the demand and supply of the shipping industry.... s noted above, the supply is also constantly increasing as the constant growth in contracting shipping industry supply development.... It is noted the increase in supply is has been at a higher percentage as compared to...
5 Pages (1250 words) Essay

Supply and Demand of Online Music Streaming

The traditional music industry was consisting upon artists and music companies, who make money by creating and selling music in the physical market in cassettes, CDs, etc….... he recording trend of music was emerged by the end of the 20th century, when a number of companies,.... ... ... However, with the development of technology, the music industry has also experienced a shift towards the digital and online world, Now, people can access their favorite music through internet by paying no or comparatively low prices to the suppliers....
5 Pages (1250 words) Essay

Primark and Ethically-Sourced Garments

It comprises of a detailed analysis of the demand, supply as well as the price mechanism within the economy.... A study is carried out on the overall demand of the customers for the products manufactured by the company.... Primark constitutes a part of the Associated British Foods (ABF) which is a diversified international ingredients, food and retail groups (Preuss, 2009)....
8 Pages (2000 words) Essay

Impact of Hyperinflation on Investors and Citizens

In order to accomplish that distinct objectives have been framed so that the investigation can be run in a systematic way and consequently arrive at the research result.... ... ... ... In this chapter, a research methodology will be developed that will direct the pathway of achieving research objectives....
7 Pages (1750 words) Essay

Impact of Hyperinflation on Investors and Ordinary Citizens of Zimbabwe

In order to accomplish that distinct objectives have been framed so that the investigation can be run in a systematic way and consequently arrive at the research result.... ... ... ... In this chapter, a research methodology will be developed that will direct the pathway of achieving research objectives....
21 Pages (5250 words) Essay

Economics: Supply and Demand

This essay "Economics: supply and Demand" discusses choice as a decision or a course of action in preferring things to another.... The effect will be on the supplier who will drop out of the market causing a reduction in the supply.... (b) Are there any factors on the supply side that are likely to cause the market supply of UK owner-occupied housing to shift?... There will be more supply of housing units ready for occupancy pulling the price markets down....
4 Pages (1000 words) Essay

The Law of Supply and Demand

In a free-market economy, the interests of both buyers and sellers are reconciled by market forces of demand and supply.... n agriculture, demand refers to buyers of farm products and supply to farmers who produce the goods.... This case study "The Law of supply and Demand" analyzes the law of supply and demand that has influenced man's activities, major activities to say the least, and has a broader role to play in the interrelationships, especially in the midst of globalization....
9 Pages (2250 words) Case Study
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us