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Supply And Demand And Price Elasticity Paper

1000 words - 4 pages

Supply and Demand and Price Elasticity Paper


The laws of economics control the decisions made in everyday life. The products people decide to purchase, and do without, are controlled by the laws of supply and demand. There are different factors that control the shifts and movements of supply and demand. The desire for a product is most closely related to price, and these desires bring markets towards equilibrium. When something becomes more expensive the demand generally falls. Factors necessity of a good, complimentary and substitute items, all play roles in price elasticity. It is the job of an economist to foresee market flow and predict these changes. The necessity of ...view middle of the document...

This shift influences the supply of the good and the equilibrium price. When there is no increase in the demand, but there is an increase in supply, there demand curve will eventually move. In order to clear the excess supplies, market equilibrium drops to a lower price.
Price elasticity measures how responsive the demand is for a service or good to its price. Consumers will purchase a good no matter how costly it may be, if it is a necessity. The price elasticity of the product will be weak. If there are more competitors in the market, the supply and demand will constantly fluctuate in the market. Competing companies offer cheaper substitutes in order to raise profit, so demand increases. A good does not have to be a necessity it could be a desire. 64% of American’s drink some kind of alcoholic beverage whether it is beer, wine or liquor (Chang, 2006). Alcohol is a complex good composed of different beverage types and quality brands. As a complex good, consumers may make substitutions between purchases depending on the price increase (Gruenewald, Paul J.; Ponicki, William R.; Holder, Harold D.; Romelsj, Anders, 2006). A cheaper alcoholic beverage can also draw consumers in to a specific brand if it meets their needs. That will give the company of the lesser value an increase in demand, and a decrease in supply. It does not matter if suppliers are selling for a necessity or for pleasure they will always have to meet the consumers’ needs if they ever want to increase their demand.
There are four major types of market systems existing globally, each with its advantages and disadvantages. A perfectly competitive market consists of numerous buyers and sellers of a similar product. In this system, buyers and sellers have little or no influence on the market price of their product because each business is small in relation to the market. They must accept the price of their product as determined by the market. In a monopoly there exists exactly one seller of a product that has no...

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