Economic Theories: Supply And Demand

1. A firm's current profits are $1,000,000. These profits are expected to grow indefinitely at a constant annual rate of 3.5 percent. If the firm's opportunity cost of funds is 5.5 percent, determine the value of the firm:

Market Equilibrium is the condition where “supply and demand curves intersect” (Mankiw 2004, p.75). It involves both laws of demand and supply, ceteris paribus. Market Equilibrium is achieved through having a market that is at rest and has already arrived at an economic balance between demand and supply. The buyers and sellers both agreed and are willing to buy and sell on an Equilibrium Quantity at an Equilibrium Price. This situation satisfies the law of demand stating that “the lower the price of the product, the larger will be the quantity demanded; and the higher the price, the smaller will be the quantity demanded, other things being equal” (Sharp, et al. 1994, p.33). It also satisfies the law of supply stating that “the higher the price of the product, the larger will be the quantity supplied; and the lower the price, the smaller will be the quantity supplied, other things being equal” (Sharp, et al. 1994, p.38). When the quantity demanded and quantity supplied is equal with each other, the corresponding price is the equilibrium price. Suppose that Buyer A wants to purchase five

Supply and demand lies in the heart and soul of economics. The concept is perhaps the single most driving force in an economy, specifically a capitalist economy. Supply and demand is based on two concepts: The law of demand and the law of supply. The law of demand states that the demand of a product rises as its price falls, therefore the demand of a product falls as its price rises. A good example of this occurs in grocery stores. If the price of a case of Coca-cola drops from $6.99 to $2.99 the demand for the product will rise because more people are willing to pay $2.99 rather than $6.99. Not only will typical consumer of Coca-cola purchase more but consumers who are not normally willing to pay $6.99 will make the purchase. Substitution also plays a role in the equation. Substitution occurs when consumers substitute one good for another based on price levels. In the Coca-cola scenario, some Pepsi drinkers will purchase the Coca-cola given the case of Pepsi is price higher.

 The table gives the supply schedules for jet-ski rides by three owners: Rick, Sam, and Tom, the only suppliers of jet-ski rides.

Supply is the total amount of a specific good that is available to the consumers. The supply of lobsters depends on the ocean temperature and since the ocean temperature is increasing, lobsters may once again come in a couple more weeks earlier than usual. In 2012, this caused the quantity of lobster to increase significantly, thus the supply curve shifted to the right. The shift caused the equilibrium price to decrease and the quantity to increase. On the other hand, if the ocean temperature is too low, then the lobster production rate is lowered. The supply curve will then shift to the left and cause the equilibrium price to increase and the quantity to decrease. The lobsterman cannot control the supply of lobsters since the production depends on the temperature. Another economic topic that came to my mind is the demand of a product. Demand is a consumer’s willingness to pay a price for a specific good. The demand curve would shift to the right if the price of the lobsters decreases due to mass production and vice

It is basic economic principle that states that when there is an oversupply of a good or service, prices fall. When there is a high demand, prices tend to rise.

Supply and demand concepts are all around us. Take for example a shoe factory. From a macroeconomic perspective everybody needs shoes. This type of product is a necessary and not a luxury product. So, there will always be a higher demand of shoes. The company will always try to find the best price to sell the shoes so that the demand increases. The price of shoes is also determined by the production cost of the shoe since it needs to be higher than it. Producing the shoes does not only depend on the company itself but on other macroeconomic indicators. For example, if oil prices increase, the company will need to increase the price of the shoes since it would cost more to pay the suppliers for delivering the materials needed in the production process. Also, as the law of supply says, when supply increases, the price increases. If the supply

Michigan has an abundant supply of fresh water. However, an economist would consider it a scarce resource because

Economists have created a theory of demand which states the following. Demand curve has a downward slopping which shows the relation between price and quantity while all other factors are equal. At higher prices the demand will decrease, while at lower prices demand will increase.

The market price of a good is determined by both the supply and demand for it. In the world today supply and demand is perhaps one of the most fundamental principles that exists for economics and the backbone of a market economy. Supply is represented by how much the market can offer. The quantity supplied refers to the amount of a certain good that producers are willing to supply for a certain demand price. What determines this interconnection is how much of a good or service is supplied to the market or otherwise known as the supply relationship or supply schedule which is graphically represented by the supply curve. In demand the schedule is depicted graphically as the demand curve which represents the

Use University of Phoenix Material: Appendix A to create graphs illustrating the equilibrating process in price relation to the shift in supply and demand.

To summarize the concept, when the price of a product falls, the quantity demanded of the product will increase, and conversely, when the price of a product increases, the quantity demanded of the product will decrease, where all other relevant factors are constant. (Glen, 2012).

Understanding the fundamental concepts of economics allows us to analyze laws that have a direct bearing on the economy. These laws and theories are essentially the backbone of how economics is used and studied. The law of demand can be expressed by stating that as long as all other factors remain constant, as prices rise, the quantity of demand for that product falls. Conversely, as the price falls, the quantity of demand for that product rises (Colander, 2006, p 91). Price is the tool used that controls how much consumers want based on how much they demand. At any given price a certain quantity of a product is demanded by consumers. As the price decreases, the quantity of the products demanded will increase. This indicates that more individuals demand the good or service as the price is lowered. This can be illustrated using the demand curve. The demand curve is a downward sloping line that illustrates the inversely related relationship of price and quantity demanded.

The consumers and producers behave differently. To explain their behavior better economists introduced the concepts of supply and demand. In short words, the law of demand states that with price increase quantity demanded of a good or services decreases, and the law of supply states that quantity of a good produced increase if the market price of that good increases. Of course, it is just general rule and does not explain all varieties of factors impacting the supply and

Supply and demand is perhaps one of the most fundamental concepts of economics and it is the backbone of a market economy. Demand refers to how much (quantity) of a product or service is desired by buyers. The quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand relationship. Supply represents how much the market can offer. The quantity supplied refers to the amount of a certain good producers are willing to supply when receiving a certain price. The correlation between price and how much of a good or service is supplied to the market is known as the supply relationship. Price, therefore, is a reflection of supply and demand.