The Law and Demand Effect/Economics Essay

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Law of Supply and Demand Microeconomics Understanding Supply and Demand At the heart of every business endeavor is an exchange between a buyer and seller. The buyer recognizes that he or she has a need or wants a particular good or service and is willing to pay a seller to obtain it. The seller wants to participate in the process because of the anticipated financial gains from selling the good or service. So, the exchange process involves both demand and supply. Demand Demand refers to the willingness and ability of buyers to purchase goods and services at different prices. Supply Supply refers to the willingness and ability of sellers to provide goods and services for sale at different prices. The Demand Curve Because most people typically have unlimited wants and limited financial means to acquire them, demand is driven by a number of factors that influence how people decide to spend their money, ranging from an item’s price to quality of life decisions. As the price of a good or service goes up, people buy smaller amounts. So, as prices rise, quantity demanded falls. At lower prices, consumers are generally willing to buy more of a product. A demand curve is a graph of the amount of a product that buyers will purchase at different prices. The demand curve typically slopes downward, meaning that lower and lower prices attract larger and larger purchases. The Supply Curve Just as consumers must make choices about how to spend their incomes, businesses must also make decisions about how to use their resources to obtain the best profits. When looking at supply, a number of factors and economic indicators affect the available quantities of goods in the marketplace. Sellers would prefer to command a high price rather than a lower price for their offerings. A supply curve graphically shows the relationship between different prices and the quantities

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