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Supply and Demand Essay

Essay by   •  June 28, 2011  •  Essay  •  937 Words (4 Pages)  •  1,746 Views

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When we discuss the subject of economics, terms such as supply, demand, and equilibrium price are often mentioned. It is also common to see graphs which contain the supply and demand curve. We might ask, why are these terms so important when discussing economics? The answer is because these terms are the key components in the subject of economics. Therefore, before we can fully understand economics we must first understand the terms and how they are related.

Demand can be described as the relationship between the price and quantity demanded for a particular good or service in specific circumstance. For each price provided, the demand relationship will tell the quantity that the customers are willing to purchase at a corresponding price. The quantity the customers are willing to purchase at a particular price is called the Quantity Demanded. An important thing to do is distinguish between demand and the quantity demanded. To explain the concept, the buyers are the people who want or need the product or service. The term "demand" refers to the willingness and ability of customers to purchase the good or service in the market. The demand relationship expresses the willingness and ability for the whole assortment of prices. To claim that a customer has a demand for a particular item is to declare that the customer has money with which to buy the item and is willing to exchange the money for the item. Customers do not demand what they do not truly want or need; therefore, a want or a need that lacks purchasing power is not a demand. With that in mind, it is not enough that the suppliers possess the good or the ability to perform a service. Economists usually treat supply symmetrically as demand. This means that they treat supply as a correlation between price and the quantity supplied. Supply also means willingness to sell, and the supplier must be willing to sell the item or service at a price that the customers will demand it. Demand is not a particular quantity since the quantity that people are willing and able to purchase will change in response to the price changes. There is a methodical relationship between the price in the marketplace and the quantity that customers are willing and able to purchase. This relationship is called the "demand relationship." The amount that customers buy at each price level is called the "quantity demanded" at that price.

In economics the relations of supply and demand is understood as the equilibrium. Think of demand as a force which tends to increase the price of a good or service. Then think of supply as a force which tends to reduce the price. When the two forces are balanced, the price will neither increase or decrease they will be stable. This analogy allows us to think of the stable or natural price in a particular market as the equilibrium price. This type of equilibrium exists when the price is high enough that the quantity supplied equals

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