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Microeconomics: The Law of Demand and Supply


The law of demand can be summarized thus. When the price a good or service falls more people buy more, more often. A demand curve shows the effect of price on the quantity demanded. Here the price is low and the quantity demanded is high, a small rise in price leads to a drop in demand. As the price continues to rise, so the demand for the product steadily falls movement along the curve is controlled by price. Changes in consumer income, population level or consumer preferences shift the demand curve sideways. Increases in consumer income population-level all consumer preferences only to increase demand.

The demand curve shifts to the right, quantity demanded still tools as price increases but the overall quantities demanded a greater at every price level. Conversely, when demand falls the curve ships to the left. Prices have related goods also cause the demand curve to shift. A rise in the price of a substitute product also causes the curve to shift. For example, if the price of margarine rises, the demand for battle might increase hands ships to the right. But the rise in the price of a complementary good such as a printer leads to a fall in the demand for printer cartridges for that printer.

The lower supply tells us that as prices rise produces expands the quantity of goods available. A supply curve shows the relationship between price and the quantity supplied. Here when the price is low the quantity supplied is also low. As the price rises there is an incentive to produce more. Hence, movement along the supply line is controlled by price. The curtain ships to the right meaning increase supply all price levels. When input costs fall technology associated with production increases, will decide that the industry increases.

Conversely an increase in input costs or shrinkage if the industry lowers the quantity supplied, shifting the supply curve to the left. When the price is too low demand is much higher than the available supply, there is a shortage goods. As the price increases demand falls and supply rises, but a shortage still exists. Until at Point is reached with the quantities demanded and supplied equaled this is the situation equilibrium. When the price is too high demand falls below supply and there is a surplus at goods.

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