Question

Develop a discussion of the general mechanics of how a market (As an example for your discussion use the market for generic Red Delicious apples) works using supply and demand.

Answer 1

In economics, a market is defined as a place where buyers and sellers meet to get maximum utility or satisfaction and profit from transactions of buying and selling that take place there. It is important to know, that markets over the years have also attained virtual nature wherein you can interact with buyers or sellers over the internet and plan your transactions online without ever meeting in person.

The theory of demand and supply and price, is what sets market into action. The demand for a commodity is defined as the quantity of the good which people are willing to buy at different price levels given their fixed income levels. Usually, as the price of the commodities decrease, the buying capacity of people increases which leads them into easier purchases.

Supply on the other hand, refers to the quantity of goods sold in the market as compared to the prices of the same. As a rule, as the price of goods increases, the quantity supplied of the same increases. This happens because firms try to maximize their overall profits.

This can further be explained with the help of the following graph.

In the graph above, we see different Quantities of Apple being sold at different price points. It is important to know that Q1 is greater than Q and Similarly P1 is greater than P.

The demand curve has a downward slope, as with a decrease in price, people demand more and the exact opposite is true for supply curve.

Similarly we see at a reduced price, Demand is greater than Supply, and with an increase in Price, Supply is greater than demand. We hit equilibrium, when both demand and supply intersect one another at Price P and Quantity Q respectively.

Thus, market is said to be in equilibrium when the interest of both consumers and producers is maximized which keeps them in motion to purchase or sell goods even further.

Please feel free to ask your doubts in the comments section.