Overview of Interrelated Aggregate Demand and Aggregate Supply Curves

The law of supply and demand is an economic theory that explains how supply and demand are related to each other and how the relationship affects the price of goods and services. It's a basic economic principle that states that when there is an oversupply of a good or service, prices fall. When there is high demand, prices tend to rise. (Investopedia, 2015)

-The role and significance of prices in the market economy has to do with supply and demand. If there are the same amount of buyers as products, the price will settle. If there are more buyers than products, the price of the product will rise. And, if there are more products than buyers, the price of the product will decrease. This occurs until the supply of the product matches the demand of the product.

In any given market, the relationship between supply and demand will reach a natural equilibrium. The supply is determined by the producer of the goods or service. The consumer sets the demand. Consumers are less willing to purchase a good or service at a high price and more likely at a low price. Similarly, producers are less motivated to sell a good or service at a low price and more willing to sell it at a high price. These two opposing positions naturally balance out at the point which the producers are willing to sell their product, and the consumers are willing to purchase it. Once reaching this point, the relationship between supply and demand has achieved a natural equilibrium (McEachern).

there are a number of different buyers and sellers in the marketplace. This means that we have competition in the market, which allows price to change in response to changes in supply and demand. Furthermore, for almost every product there are substitutes, so if one product becomes too expensive, a buyer can choose a cheaper substitute instead. In a market with many buyers and sellers, both the consumer and the supplier have equal ability to influence price.

Having a supply curve that slopes upward means the higher the price, the more suppliers are willing to supply the market. In the long run as price increases, more and more firms are willing to produce more product as Price is greater than Marginal cost. So the supply curve is upward sloping.

Both supply and demand can be graphed on supply and demand curves. The demand curve follows a negative slope, so as demand increases price decreases. The supply curve follows an opposite, positive curve. As the quantity supplied increases, so does the price. Looking at both on the same axis we can

A deep recession in the world economy decreases aggregate demand. A sharp rise in oil prices decreases short-run aggregate supply. The expectation of lower future profits decreases investment and decreases aggregate demand.

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,

To begin with, the first part to aggregate demand and supply is aggregate demand. Aggregate demand is a curve that shows how much of the nation 's output (or real GDP) in total that buyers want to purchase at each possible price level. Buyers and consumers can vary from households, to businesses, government, and even outside consumers such as a different country’s households, businesses, and government. Aggregate demand, or demand for real

3. Law of supply and demand helps determine pricing of items in that supply drives demand. For example, surplus supply will cause prices to drop, and vice versa.

The world runs on the concept of supply and demand. Supply and demand are the key concepts in the economist theory. Supply is simply how much of a product that the market can make and offer to consumers for a certain price. The supply can depend on resources of the producer or how willing they are to produce it. While, demand is how much the consumers insist on paying for a product or service (cite website1). As I stated before, the world runs on this economic theory. Economics is not a concept limited to more advance societies such as the United States. In all countries economist are investigating the relationships between price and quantity in-regards-to both supply and demand, the demand curve, market demand and there variables, the supply curve, and shifts that occur.

When demand is at low level, large number of production does not use their fixed capital equipment then the result will be increase in production without diminishing returns. So average price level does not increase but production increases. When demand is increased, the prices will increase which results in a steep curve.

Q # 2. What are the determinants of demand? What happens to the demand curve when each of these determinants changes?

The second reason for the downward slope of the aggregate demand curve is Keynes's interest-rate effect. Recall that the quantity of money demanded is dependent upon the price level. That is, a high price level means that it takes a relatively large amount of currency to make purchases. Thus, consumers demand large quantities of currency when the price level is high. When the price level is low, consumers demand a

Supply shocks are a common phenomenon in the market situations. It is an event whereby there is a sudden change of service and goods prices due to an instant change in the supply function of the market. Supply shocks exist in two forms; negative supply shock and positive supply shock. The two types of supply shocks lead to the effect on the equilibrium price. Negative supply shocks involve the sudden decrease in supply and the instant increase in price of commodity. The end result of the negative supply shocks involve the stagflation of the market whereby output falls with raising prices. Positive supply shocks involve an increase in the supply of a commodity (Lewis & Mizen 2000). The essay aims at analyzing and describing the role of supply shocks in models of optimal discretionary monetary policy and reflecting on the application of the shocks to help central bankers in the financial crisis of 2007 to 2008.