Supply and Demand
Three little words..
Often that is all it takes to make one’s heart beat faster. “Liberty, equality, fraternity” captured the French Revolution. “I love you” underpins many a successful relationship. For many economists, those three magic words are “supply, demand, price.”
Supply and demand is the backbone of a market economy.
Demand refers to how much (quantity) of a product or service is desired by buyers. The quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand relationship.
Supply represents how much the market can offer. The quantity supplied refers to the amount of a certain good producers are willing to supply when receiving a certain price. The correlation between price and how much of a good or service is supplied to the market is known as the supply relationship. Price, therefore, is a reflection of supply and demand.
The Law of Demand:
The law of demand states that, if all other factors remain equal, the higher the price of a good, the less people will demand that good. In other words, the higher the price, the lower the quantity demanded. The amount of a good that buyers purchase at a higher price is less because as the price of a good goes up, so does the opportunity cost of buying that good. As a result, people will naturally avoid buying a product that will force them to forgo the consumption of something else they value more.
The Law of Supply:
Like the law of demand, the law of supply demonstrates the quantities that will be sold at a certain price. But unlike the law of demand, the supply relationship shows an upward slope. This means that the higher the price, the higher the quantity supplied. Producers supply more at a higher price because selling a higher quantity at a higher price increases revenue.
Read more: Investopedia
Often that is all it takes to make one’s heart beat faster. “Liberty, equality, fraternity” captured the French Revolution. “I love you” underpins many a successful relationship. For many economists, those three magic words are “supply, demand, price.”
Supply and demand is the backbone of a market economy.
Demand refers to how much (quantity) of a product or service is desired by buyers. The quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand relationship.
Supply represents how much the market can offer. The quantity supplied refers to the amount of a certain good producers are willing to supply when receiving a certain price. The correlation between price and how much of a good or service is supplied to the market is known as the supply relationship. Price, therefore, is a reflection of supply and demand.
The Law of Demand:
The law of demand states that, if all other factors remain equal, the higher the price of a good, the less people will demand that good. In other words, the higher the price, the lower the quantity demanded. The amount of a good that buyers purchase at a higher price is less because as the price of a good goes up, so does the opportunity cost of buying that good. As a result, people will naturally avoid buying a product that will force them to forgo the consumption of something else they value more.
The Law of Supply:
Like the law of demand, the law of supply demonstrates the quantities that will be sold at a certain price. But unlike the law of demand, the supply relationship shows an upward slope. This means that the higher the price, the higher the quantity supplied. Producers supply more at a higher price because selling a higher quantity at a higher price increases revenue.
Read more: Investopedia
Agents of Production
There
are Four agents of Production:
-Land
-Labour
-Capital
-Entrepreneurship
-Land
-Labour
-Capital
-Entrepreneurship
Last
year a farmer's crop yielded $100 worth of produce.
To
generate that selling price, the farmer incurred $25 to rent the land,
$25 to pay for labor, and $25 for the use of equipment. The remaining
$25 compensates him for his effort as an entrepreneur.
Source:
http://www.allbusiness.com/
What is Economics?
Economics is the study of how wealth is created, distributed
and consumed. It concerns the ways in which a country produces,
distributes and consumes the tangible, material commodities of life. It
is also about how the proceeds or income from these activities are
distributed between those that contribute toward them: capitalist
businesses, workers, the state and the whole of society. Every person
affects the economy in some way and we are all affected by it.
Economics attempts to answer questions such as:
Economics attempts to answer questions such as:
- What is produced and how?
- Why does a particular country produce particular goods and services?
- How are the natural resources used?
- How does a country earn and spend its money?
- How are its people employed, and what technology do they use in their work?
- What is the relationship between these things and the wealth and poverty of different communities?
The basic assumption of Economics is that people have unlimited needs and there are only limited resources.
Economics explains how people choose to use the limited resources to satisfy their never ending needs.
Resources include the time and talent of people,
the land, buildings, equipment, and other tools on hand, and the knowledge of
how to combine them to create useful products and services.
Important choices involve how much time to devote to work, to school,
to leisure, how many dollars to spend and how many to save, how to
combine resources to produce goods and services, and how to vote and
shape the level of taxes and the role of government.
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