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Supply And Demand


What causes changes in supply and demand?

Demand is defined as the scheduled services per unit and goods that individuals or the consumers are willing and have the capacity to purchase them in a given prices without complains. On the other hand, supply relates to the amount of the same that producers have managed to produce and they are willing to sell to consumers with the same price which the consumers are willing to buy. There are different factor that causes changes in supply and demand, (Tomlinson, 2011).


For instance, when the price of tea rises, a tea café which sells tea to the residents will automatically increase the tea price. With the increase in the tea price, there will be a change in the demand of the tea. Few people will demand tea which can termed as the price in-put effect.


Price of substitutes enters when the café provides more of coffee services to the consumers since the prices of tea have risen and this will automatically increase the demand level of coffee substances which will increase the supply of coffee. If the production of tea increases, this will automatically increase the availability level of the same which will result to a decrease in the charged price which is known as the technology change. Increase in the number of operating firms in the same line does affect demand and supply. The reason behind this will be due to the competition aspect which will tend to reduce the prices, (Tomlinson, 2011).

How changes in price and quantity influence market equilibrium

In order to understand how price and quantity works in the market equilibrium, we should get the concept of demand and supply. Demand and supply curves are important in determining the equilibrium concept. Quantity demand is the level at which buyers are willing to buy at their own pace and quantity supplied is the amount sufficient for the suppliers to the market without any effect, (Tomlinson, 2011).


The market equilibrium has two forces that play a major role and they are the supply and the demand. At any given time, buyers will tend to buy commodities at a lower price while sellers selling at a high price thus forcing the situation to come into a point of agreement which is the equilibrium. In a situation when there is surplus, prices will always tend to fall thus making more consumers demand goods and services. Since the price is low suppliers will be forced to lower the level of goods so as to reach the market equilibrium price point. The aspect of lowering the price affects what is supplied in the market simply because suppliers do not make profits thus increasing the quantity demanded which pushes the results to the market equilibrium, (Tomlinson, 2011).


How the necessity of a good and the availability of substitutions affect price elasticity

Price elasticity is the measure of how buyers responses to substitute commodities in a situation where there are changes in the prices of the same commodities. In a higher price elasticity situation, incase of an increase in price of commodities, buyers will tend to reduce the consumption rate and when the price reduces the situation reverses in the opposite direction. For low price elasticity, the situation is somehow different simply because the effect on demand will be less realized, (Tomlinson, 2011).


The main consideration in price elasticity via the necessities is on the price changes. Price changes of goods that can be used on behalf of the expensive ones play a major role in determining the price effect. In a situation whereby the price of a substitute good changes results is that the demand of the original commodity will eventually change bearing the same effect. Consider, if the price of coffee goes up, consumers will tend to buy more of tea than coffee. The situation will be same simply because incase the price of tea reduces, the consumers will go back to normal situation whereby they will tend to buy more of the original product over the other, (Tomlinson, 2011).


The role of an economist within these systems

The core point in this situation is the number of firms in a given market environment and how they are able to conduct themselves in the settings of the competitive dimension. The ability of the firms that are in the market to operate and differentiate their services from their competitors is the key concept behind the entire idea. How does a new firm affect the existing market by way of entering and leaving?


Regardless of the type of system employed in the given market, the main aim of any firm is to make profits so that it can retain its survival level. The work of the economists in the market system is to oversee and study the movement of the entire economy so as to give ideas on how the economy can be adjusted. Information provided by economists helps the common person make decisions on how he or she can enter or live the market system, (Tomlinson, 2011).


Reference:

Tomlinson, S. (2011). Economics with Steve Tomlinson Transcript: Understanding        Markets Demand [Episode 4.2-1]. . Podcast retrieved from,             http://custom.cengage.com/static_content/OLC/0324833326/data/transcripts/8353       .pdf, on April 30, 2011


 
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