Relationship Between Supply And Demand

1998 Words8 Pages
The purpose of this essay is to show the relationship between supply and demand and the influence they have on the market price. The objective is to demonstrate how market prices change as the supply of, and the demand for a product changes until the quantity demanded by consumers equals the quantity supplied by producers, the equilibrium point. At the equilibrium point, the demand and supply curves intersect. The price at which the suppliers are willing to sell and the consumers are willing to purchase is the market price. However, there are products that are not affected by the law of supply and demand, a change in price; does not affect the quantity demanded and the quantity supplied, these products are said to be inelastic.

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The law of supply states that there is a positive relationship between the price of a good and the quantity that producers are willing to supply, all other factors being equal. As product or service prices increase, suppliers will supply more units and as the prices decrease, they will supply fewer units. This accounts for the direct relationship between the price of a product and the quantity supplied by producers.

In economics the supply of a product is represented by a supply curve. The law of supply states that there is a positive relationship between supply and price, and as such the supply curve is a positive slopping curve. Producers will supply a larger quantity of a product as the price of the product rise and when there is an improvement in technology that makes it possible for producers to achieve a lower per unit cost. They will increase the supply and the supply curve will shift to the right. The decreasing in price and the higher costs of production will decrease the quantity of goods supply, which will cause a shift in the entire supply curve to the left. The higher cost of the factors of production and Government taxes will increase the cost of supplying a product and as such will reduce the market supply of that product. The main factors that determine supply includes; the number of suppliers of the product, the producer expectation of future prices and the cost of producing the product. In a perfect markets system, supply in determined by the
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