How Equilibrium Occurs Using The Supply And Demand Framework Essay
Describe how equilibrium occurs using the supply and demand framework. Use this framework to explain movements in the price of wheat over the past 15 years.
Supply and demand is the backbone of a market economy. Demand refers to the want, need or desire for a product backed by the money to purchase it. The quantity demanded is the amount of goods and services that consumers are willing to buy at a certain price. The interconnection between price and quantity demanded is the demand relationship. Supply refers to the amount of a product made available for sale by firms. The quantity supplied are the amount of goods that suppliers are willing to supply at a certain price. The interconnection between price and quantity supplied is the supply relationship. Price and its fluctuations are the demonstration of supply and demand in a market.
Supply curve: Demand Curve:
The law of demand states that, the higher the price of a good, the lesser the demand for the good. Consumers often find themselves a substitution when price of goods increases. Besides, demand for good is also affected by the income effect. This is because prices rises relative to income levels. The law of supply states that, the higher the price of a good, the greater the quantity supplied. As the quantity of supply increases, the marginal cost increases and this is profitable to suppliers.
Market equilibrium is the…