Supply And Demand Analysis

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Market definition

In a competitive market, there are numerous consumers and producers who tend to have similar goods on offer. In effect, this means that no single buyer or seller can influence the market price.

Economics assumes that in this market there a consumers who are rational decision makers who have perfect information about the product. Therefore, The actual demand for a product depends on various variables. However, for now we will focus the price, which can be seen as the most important. It is argued that in most cases if the price of a product increases, consumers will avoid purchasing the product, as it will cause them to forgo the consumption of another product according to the theory of opportunity cost, and vice versa if
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This is the point where the allocation of a goods is most efficient, as the amount of goods a producer is able and willing to sell, equates to the same amount of goods a consumers is able and willing to purchase. It is sometimes referred to as the market clearing price because at this price, all economic agents are satisfied. It is represented by the intersection of the demand and supply curves.

When analysing the relationship between supply and demand, it is evident that there are various variables that can equilibrium price and quantity, which is represented by shifts and movements in the respective curves.
When consumers increase or decrease the quantity demanded of a good at a given price, it is referred to as an increase or decrease in demand. This change in demand cause a shift in curve to which changes the equilibrium price and quantity. It can be caused by various factors such as a change in: incomes, the number of buyers and the prices of complementary goods just to name a few.
In the scenario at hand we would see that an increase in the number of buyers in the market causes a shift in the demand curve to the right, as an increase in the group of buyers in the market means there would be more consumers to consume the product within the market, so the quantity demanded at any given price would be larger ceteris
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And when it is exactly 1 it is seen as unitary elastic and is show as an 45° supply curve.
Examples of a relatively elastic, and inelastic supply curve are shown below to further illustrates the impact an increase in consumers can have on the market.

DIAGRAMS that shows different elaticities

b. Using examples, Describe how the consumer prices index measure of inflation is calculated in the UK. talk about inflation ,what is it? Cpi measures cost of living
In the UK there is an inflation target of 2% which was set by the government using the Consumer price index (CPI), which reflects the change in the price level. The CPI reflects a change in the price level and it is calculated by multiplying the prices and weights of a specific consumption basket and dividing it by the sum of weights of the particular basket.
Where the weights are determined by the changes in the spending patterns of the average households in the UK 's economy for the year, which is measured by the Family Expenditure Survey.
The following is a hypothetical example to further explain how to calculate a weighted price index.

Category
Weighting
Price Index
Price x Weight
Food
17
100
1700

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