Demand Curve, Supply Curve & Equilibrium. The Demand Curve

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Demand Curve, Supply Curve & Equilibrium
The demand curve can be shown in a graph and it reflects the relationship between the price and amount of a commodity that people are able and willing to buy at a set price. The demand curve slopes downward because are more prone to buying a good as the price declines. For example, coffee drinkers may be willing to buy more cups of Starbucks coffee if a medium cup of regular coffee sells for $1.49 versus $2.10. Instead of buying one cup a day they may buy 2 or 3 cups a day. Lower prices increase the demand for higher quantities (Hill, n.d.). In many cases, the supply curve slopes upward from left to right, because the price of product and quantity supplied are correlated. Demand and supply curves …show more content…

When the government adopts a price control, there is no longer an equilibrium price determined by supply and demand. When government set price ceilings or price floors, they disrupt the normal direction of distributing available resources (Mankiw, 2015). A good example is when the government changes the minimum-wage laws to increase the hourly rate in hopes of helping the poor, and this also results in others being unemployed. Since the companies would not have to pay more to produce the same quantity, they are forced to lay-off some of their employees. The government has an influence on supply and demand by controlling the prices of certain goods and regulations in certain industries. The government can impose taxes on goods and services to raise revenue that may be used to subsidize projects and government funded programs. When taxes are imposed on goods and services, the government determines tax incidence, meaning who will pay taxes among those partaking in the market economy. Whether the levied tax is paid by the seller or the buyer, it affects both directly and indirectly (Hill, n.d.). For example, let’s say that Starbuck’s paid a tax on the import of whole coffee beans. Although the tax would be imposed on Starbucks the cost would be passed on to consumers of their

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