The Demand And Supply Theory

1136 WordsApr 7, 20155 Pages
In 1872, Thomas Carlyle described economics as the science “which finds the secret of this Universe in ‘supply and demand’ ”. Though sounding less complex than Professor Hawking’s Theory of the Universe, the demand and supply theory is believed to be the foundation of the determination of all the commodities consumed by all economics agents in the world. However, the demand and supply theory is not the only determinant of price in the different markets. This essay discusses what happens to the price of a particular good when it moves from one market to another and how the prices in the commodity market and the final goods market are affected by factors such as the local substitutes available, cost of production, homogeneity of the goods amongst others. The discussion will be approached using economic definitions, logic and the use of graphs and data available regarding the scenario. Philip Mohr and Associates (2015:33) argues that South Africa is a mixed economy. Hence, the different markets will be influenced by government policies and the price mechanism. How demand and supply for goods and services is affected by the various economic factors depends on the elasticity, the higher the elasticity; greater than 1, the more elastic the demand/supply will be. In Figure 1.1, we can see as represented by the green line, the demand curve for cattle for farming is inversely related to price of cattle for farming. The blue line is the supply curve positive relationship with
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