Economics and Growth Essay example

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Equilibrium price A reciprocal of forces of supply besides demand determines market price. Hence, equilibrium price is the price at which the quantity demanded equals the quantity supplied in the market. This implies that, at this price there is a state of balance (Gillespie 2007, p.13-110). The diagrams below illustrate changes in equilibrium price: Market Demand and equilibrium price (Market Demand and equilibrium price cited in Gillespie 2007, p.72-99) A demand curve is likely to change upwards as a result of changes in a number of factors. One, if there is a move up in the price of an alternative commodity, or decrease in price of the given commodity’s accompaniment. Two, if there is a positive change in buyers’ income. Three,…show more content…
First, if there is a reduction in the cost of production. Second, if the government intervenes by offering incentives to producers in terms of subsidies, which in one way another cuts down the costs per unit offered to the market. Third, with a favourable climate that boosts production levels, especially for agricultural produce. Fourth, if there is a reduction in the price of a replacement in output. Also, with advancement in production technology giving greater output and expertness in the production ways, hence reducing costs for firms (Gillespie 2007, p.72-99). According to (Begg, Fischer, and Dornbusch, 2003, p.16-89), the outward movement of the supply curve raises the supply level in the market of the commodity under consideration at each price also with a provided demand curve. There is a decline in the equilibrium price as indicated in the diagram above from point P1 to point P3, along the curve with an increase in the level of output bought as well as sold, as shown above from point Q1 to Q3. Therefore, the change in supply levels leads to expansion of the supply curve on the demand curve. The equilibrium price as well as quantity in a market will shift, if there are changes in market supply together with demand. As an illustration, the diagram below demonstrates. (Market supply and equilibrium price cited in Gillespie 2007, p.72-97) The left diagram above depicts that, an inward change of supply caused by factors
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