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Demand, Supply and Market Equilibrium - Research Paper Example

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RUNNING HEAD: Demand, Supply and Market Equilibrium. Demand, Supply and Market Equilibrium. University Name: Abstract This paper summarizes an article written Kenneth W Schafermeyer. The article is taken from the journal of managed care pharmacy, volume 6…
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Demand, Supply and Market Equilibrium
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The next thing is the connection between the law of diminishing marginal utility and the law of demand. The article describes the law of diminishing marginal utility that every additional unit brings lower satisfaction than the previous one. Therefore, every additional unit is given a lower price. Thus it is connected with the law of demand that the lower the price the higher the quantity demanded. Demand is defined as the willingness and ability of a consumer to buy a product. It is inversely related to price.

When the price of good increases, its demand decreases and vice versa. The quantity of a good the consumer is willing to buy at specific prices is called a demand schedule. It shows how demand changes with the price. The graphical presentation of a demand schedule is called a demand curve. Utility is relevant to our course as we need to know about utility of a product to clear our views about what people pursue and pay for. Demand and its connection with the law of diminishing utility is also significant as we need to know about demand to see what people want and how much they want of a specific commodity and thus decide how it can be supplied.

(Schafermeyer, 2000) Now the price change only changes the quantity demanded of a product but there are certain factors that change the entire demand of a product. . In addition to that, the number of consumers is also directly proportional to demand. Consumer tastes and preferences have a strong impact on the demand as well. A good might be cheaper but the consumer may reject it if it doesn’t suit him. Moreover, if consumers expect the price to rise, they buy more of the existing stock and thus the demand increases.

When the demand increases, the curve shifts towards the right and when it falls it shifts towards the left. The factors affecting the demand are a part of the learning requirement of our course as they change a force that controls the market. (Schafermeyer, 2000) The article defines Supply as the willingness and ability of a firm to produce a good at given price in a certain time period. Like demand, supply also has a relation with price but it is a direct one instead of an indirect one. When the price of a good rises, its supply rises.

The quantity of a good supplied at a range of prices is called a supply schedule. The graphical presentation of the supply schedule is called supply curve. The supply curve and its basics are also significant according to the syllabus as the second force controlling the market. (Schafermeyer, 2000) Apart from price, the cost of production also affects the supply. If the production costs are high then the producers will be reluctant to produce the good to avoid losses at lower prices. The number of sellers in a market also determines how much quantity will be supplied.

Furthermore, the price of related goods also affects the supply of an object as the producers will shift to the good with a higher price. Lastly, if a seller expects the price to go up in some time then he will reduce the supply and wait for the right time to

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