Unit 2 Graph Analysis Two

Any change that lowers the quantity that buyers wish to purchase at any given price shifts the demand curve to the left.

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).

Product market is a mechanism that allows people to easily buy and sell products. The interaction between product and factor markets involves the principle of derived demand. Derived demand refers to the demand for productive resources, which is derived from the demand for final goods and services or output. Firms obtain the inputs or factors of production in the factors markets. The goods are sold in the products markets. In most respects these markets are the same. Price is determined by the interaction of supply and demand, firm's attempt to maximize profits, factors can influence and change the equilibrium price and quantities bought and sold and the laws of supply and demand hold. Consumers (households), in pursuit of their self-interest, have the incentive to look for lower prices. An incentive is the hope of reward or fear of punishment that encourages a person to behave in a certain way. Free market offer a wider variety of goods and services, and consumers in essence decide what gets produced which is called consumer sovereignty.

Apple juice and orange juice are substitutes for consumers, so the fall in the price of apple juice decreases the demand for orange juice. The demand curve for orange juice shifts leftward. The increase in the wage rate paid to orange grove workers raises the cost of producing orange juice. The supply of orange juice decreases and the supply curve of orange juice shifts leftward. The net effect of these events decreases the equilibrium quantity but has an undetermined effect on equilibrium price. If supply decreases by more than the demand, the shift in the

According to OpenStax, Principles of Economics it can be a change in income, population, tastes, prices of substitutes or complements, or expectations about future prices. All these variables modify the amount of demanded product at all costs. It is possible that the demand curve shifts to the left or the right. The movement to the right happens when the amount of required good is increased at any price compared to the initial position. Conversely, a shift to the left occurs when the amount of demanded good is decreased at all costs compared to the original position.

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

Supply curves are usually indicated an upward-sloping curve. The slope of the supply curve shows that as the price goes up, producers are willing to produce more goods. When prices rise based on an increased demand for an item, companies will find it more profitable to increase the quantity supplied of the item, the supply curve will slope upward from left to right. When a price changes, the quantity supplied will change with it. The movement along the same supply curve. When there are factors other than price changes, the supply curve will shift. If the demand for an item falls, it only makes sense for a company to decrease their supply to minimize their loss. Obviously, a company would rather sell at a higher price than at a lower price to maximize profit.

A downward-sloping demand curve is formed in the form of monopolistic competition. If the average total cost is below the market price, the firm is earning a profit. Meanwhile, if the average total cost is above the market price, the firm is earning a loss. If the price is tangent to the average total cost, the firm is earning a zero profit (breakeven).

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.

1. Consumer Income Pepsi is a normal good, so when consumers get more income, they normally consume more Pepsi at any given price. The demand curve shift to the right. Inversely, when consumers get less income, they decrease their consumption of Pepsi. Because of the change in income, the demand curve will shift to the left.

The Equilibrium price is set when the supply and demand meet when the quantity demanded by the customer (market demand) and the quantity that the companies (suppliers) are willing to supply the goods/services.

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).

Earlier I stated that economics is concerned with consumption and production. We can look at it in the terms of demand and supply. It is simply the quantity of a good buyers wish to purchase at each conceivable price. Three factors determine demand:

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.

A change in anything that affects supply besides price causes a shift on the supply curve. Factors that affect the supply curve are; price of inputs, technology, expectations, and taxes and subsidies. If a producer finds that the cost for producing specific items is getting higher than supply of that item will begin to decrease as it is not economically sound to continue to make a large amount of these items. Technology has a direct affect on supply, as it becomes easier and less expensive to produce an item more of that item is produced. As with the demand curve expectation also has an affect on the supply curve, if consumers expect the cost of a product to increase they will buy more of that items which causes a decrease of supply. An example of this would be when the price of gas is expected to raise people will fill their car up and also fill gas containers. Tax also has an effect on the supply curve as it does on the demand curve, as taxes increase on a specific items then the supply for that particular items increase as people stop purchasing the item.