Economics Term Paper

Topics: Supply and demand, Consumer theory, Economics Pages: 5 (1767 words) Published: April 13, 2014
Term Paper
According to economics, demand is the ability to own something and also the readiness to pay for it. In other words, it is just like a relationship between the quantity consumers will purchase and the price for it. The product, in which the consumer is interested in, should be in their financial budget. In addition, demands can report the sales that are taking place and some people use them to guess the situation of the market. The quantity demanded, however, is the amount of goods or services that the buyers demand in a market over a time period. It does not state how much the households feel the need or want for it; instead, it states how much the households would choose to buy after looking at the opportunity cost of their decisions (Fair 42). Opportunity cost defines as the restriction(s) the households face after making their decisions. For example, if you had a choice to either study for a test or go watch a movie with your friends and you chose to study for the test in order to get good grades, the opportunity cost is giving up the time to go watch the movie with your friends. Another way of thinking the quantity demanded can take place in a coffee shop, like Starbucks. If they lower their prices of a tall coffee from $1.80 to $1.70, the quantity demanded will rise from 50 coffees an hour to 55 coffees an hour. Quantity of demand is calculated after the sales take place and it lies in the demand curve. Information on the quantity demanded can affect the amount purchased of that demand. Therefore, it can be said that demand is controlled by the quantity demanded according to their relationship.

The demand curve shows the relationship between the price and the quantity demanded of a good in the market. When you look at a demand graph, you will see that demand curve has a negative slope (downward). This curve, which is the opposite of the supply curve, shows that consumers will buy more goods and service when the price goes down and vice versa. As stated by the law of demand, the quantity demanded is negatively related to the price. In other words, the demand curve slopes downward because of the relationship between the price and quantity demanded. For example, when the price of a good falls, it usually turns out to be cheaper than the substitutes of that particular good, which is known as the substitution effect. Another example of the negative slope is the income of the consumer. When the price of the good falls, the consumer can buy more of those goods because of their given income. Their purchasing power increases as the price decreases. When the price of a product is high, then only a few consumers may afford it. When the price is low, then the consumers who couldn’t afford it before are now able to buy it, which aims to raise the market demand. According to the law of diminishing marginal utility, when a consumer purchases more units of a product, its marginal utility declines. Therefore, the consumer will purchase more units if the price of the product falls. New buyers also enter the market when the price falls, which increases the demand sloping downward from left to right.

In economic terms, supply is the amount of products or goods that are provided by a company in a market (Fair 68). It shares a relationship between the price and quantity. On the other hand, quantity shows the quantity that will be provided at a certain price. Furthermore, it displays the number in supplies depending on the price for a given time period. When the supply increases, then the amount of quantity increases as well. According to the law of supply, when the supply increases, then the price decreases. For example, ten people want to buy a videogame, but there is only one. The sale of the videogame will depend on the level of demand; therefore, the supply production will increase because they need to produce more videogames in order to meet the demand. The demand increases when the price of the product decreases....

Citations: 1) Fair, Ray C. “Principles of Macroeconomics”. Detroit: Gulham Press, 2008. Print.
2) Simpson, Stephen. "Macroeconomics: Supply, Demand and Elasticity."
Investopedia. N.p., May 2011. Web. 27 Jan. 2012.
3) Stillen, Jonah. "Supply Curve Slopes." NetMBA. Business Administration, Feb.
2010. Web. 27 Jan. 2012. .
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