Monday, August 20, 2012

Microeconomics - Understand the Law of Demand and Supply

Microeconomics is a concern with 1. Determining the price we pay for products and services. 2. What output is required by the market place. 3. The impact of the government's intervention in market forces. Understand the microeconomics will help us to analyze the fundamental nature of supply and demand concepts and how they influence the operation of a market economy.
A. Demand In terms of microeconomics,demand is defined as the relationship between the price of a product and the consumer willingness to purchase a certain quality.The law of demand also determine the price and quality sold, if the price of certain increase then the qualities of product sold decrease and the price of certain decrease then the qualities of product sold increase.
B. Supply Supply decisions reflect a supplier willingness to produce and sell at the prevailing market price and these factors all influence the supplier qualities. supplied. For most products, the quantity supplied will increase as the price level increases, all other factors remaining constant. The Law of Supply determines as a) The quantity supplied increases as price increases. b) The quantity supplied decreases as price decreases. c) Producers increase the supply as their product prices rise.
C. Equilibrium of Demand and supply When the price fall to the level the buyers are willing to pay, this produces equilibrium. The opposite effect occurs when prices are too low. In fact, the forces of demand and supply lead to an equilibrium price and quantity. a) As demand is greater than supply, price levels increase. b) As supply is greater than demand, price levels decrease. c) Only one price guarantees equilibrium
D. Other influences There are four fundamental shifts we can examine, each shift having an effect on supply or demand: a) Positive demand shift will increase demand. b) Negative demand shift will decrease in demand. c) Positive supply shift will increase demand. s) Negative supply shift will decrease in demand.
E. Government intervention Government intervention is designed to achieve the following: a) A fair distribution of income among individuals and regions. b) To encourage growth in employment and income. c) To protect low-income earners. and including: a) Minimum wages. b) Rent control. c) Farm marketing Board. d) Taxes.