Supply, Demand & Price Elasticity
Supply, Demand and Price Elasticity
People and companies make economic decisions on a daily basis by deciding how much of something they will buy and what prices they are willing to pay for the goods or services. Through individual decision-making, consumers determine supply demands for their needs and wants, and companies decide which goods and how many goods are to be sold, and how much to charge consumers. There are many fundamental concepts and definitions that are important to understanding the economics. The concepts that will be discussed in this paper are supply, demand, and price elasticity.
Demand Variables Demand is defined as the amount of a good or service that consumers are willing and able to purchase (Hubbard & O’Brien, 2010). Several factors can influence the amount of demand a product has. The biggest influence is income that people have available to spend, this will place limits on the amount of a product they can purchase. Increasing a person’s available income will increase the amount of a product that is in demand, in the same way decreasing income will decrease the amount of product in demand. Prices of products and services also affect how much people are willing or able to purchase. If the supply of goods and services remains constant and the price increases, people may demand less of it. The same is true when supply is constant and there is a decrease in price, the demand for those goods and services may increase. There is also the possibility that buyers may find rare items more appealing, thus willing to pay a premium. The number of substitute products available can also affect how much a consumer will purchase of any given good or service. If there are many substitutes’ available, consumers have a choice of which product to buy, and they could chose to purchase another company’s goods, decreasing the demand. The price of the substitute can play a role in the decision making process as well. Substitution is not necessarily
People and companies make economic decisions on a daily basis by deciding how much of something they will buy and what prices they are willing to pay for the goods or services. Through individual decision-making, consumers determine supply demands for their needs and wants, and companies decide which goods and how many goods are to be sold, and how much to charge consumers. There are many fundamental concepts and definitions that are important to understanding the economics. The concepts that will be discussed in this paper are supply, demand, and price elasticity.
Demand Variables Demand is defined as the amount of a good or service that consumers are willing and able to purchase (Hubbard & O’Brien, 2010). Several factors can influence the amount of demand a product has. The biggest influence is income that people have available to spend, this will place limits on the amount of a product they can purchase. Increasing a person’s available income will increase the amount of a product that is in demand, in the same way decreasing income will decrease the amount of product in demand. Prices of products and services also affect how much people are willing or able to purchase. If the supply of goods and services remains constant and the price increases, people may demand less of it. The same is true when supply is constant and there is a decrease in price, the demand for those goods and services may increase. There is also the possibility that buyers may find rare items more appealing, thus willing to pay a premium. The number of substitute products available can also affect how much a consumer will purchase of any given good or service. If there are many substitutes’ available, consumers have a choice of which product to buy, and they could chose to purchase another company’s goods, decreasing the demand. The price of the substitute can play a role in the decision making process as well. Substitution is not necessarily
References: Atwood, M., Hatch, T., Roberts, N., Silva, E. (2003). Economics for Dummies. Retrieved from http://www.strom.clemson.edu/becker/prtm320/economics_primer.html. Hubbard, R & O 'Brien, A. (2010). Economics (3rd ed). Boston, MA: Pearson Hall. Sowell, T. (1930). Basic Economics.