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Supply Versus Demand Literature Review

1104 words - 5 pages

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Supply vs Demand
Abstract
Supply and demand are two important concepts in a marketplace. These concepts are dynamic and vary from market to market. The objective of this paper is to compare and contrast the supply and demand concepts based on available scholar material. The comparison involves reviewing the literature material under the definitions of demand and supply; the relationship between supply and demand; the effect of supply and demand on the market; and the factors affecting demand and supply in the United States of America. The review uses book materials in economics including the classical economics.
Definition of demand and supply
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Miller gives an example of suppliers of jewelry sell more if the price of Gold rises. The demand curve shows the inverse relationship between the quantity demanded and the price of the commodity, (Alfred, 1920). Marshall argues that an increase in price increase reduces the demand. Marshall in his book refers to the demand and supply curves as scissor blades that intersect at the equilibrium point. This equilibrium point has a price value Marshall refers to as the market price. The market price of the goods and services is thus set by the demand and supply of the specific good or service.
Effects of demand and supply on the market
The demand and supply have a direct effect on the market, (Kling, 2008). Prices play a key role in the decision making among the producers and consumers. Kling argues the most important function of the market is to find equilibrium price that balances the supply and demand. The market clearing is a concept that is built from this function. The producer in a market will tend to hike prices for their products. It is natural that even without the competitors the law of demand sets a limit on the price that the consumer can enjoy. Kling shows that as the price goes up, the consumers demand less. If the prices are too high, fewer consumers are willing to purchase the commodity. The supply will be greater than demand in such a case hence the producers will have excess products. Similarly, if the prices are too low, more consumers are willing to purchase the commodity. The demand for the products will be in excess. The law of supply and demand naturally clears the market to set an equilibrium price.
Factors affecting supply and demand
Demand and supply like many economics parameters are also affected by a number of factors, (Anderton, 1991). Anderton shows that the price, consumer preferences, fashion, price of substitute and income affect the demand of giving goods and services whereas price, taxes, cost of production, technology, and government subsidies affect the supply. Anderton emphasizes on price as the key factor the affect both demand and supply. He argues the other factors are minor and most of which affect either supply or demand. An increase in income is said to raise the purchasing power of the consumer thus higher demand. Fashionable good, preferable goods and better substitutes have a higher demand. On the supply side, the decrease in cost of...

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