Question

Why is it important for traders to know how the offer and demand of the economy works? (Write at least two paragraphs for each question and remember each paragraph must contain six or more sentences)

Answer 1

The two basic terms used most often by economists are supply and demand. The amount of something that is available – the supply – and the amount of something that people want – the demand – make up a working market. The market is the way in which an economic activity is organized between buyers and sellers through their behavior and interaction with one another. The interaction of buyers and sellers in the market helps to determine the market price, thereby allocating scarce goods and services efficiently. The price is taken into account when deciding how much of something to consume, and also how much to produce. An efficient allocation of goods in a market is one in which no one can be made better off unless someone else is made worse off.

It is important for traders to know because business decisions are increasingly dependent on constraints imposed from outside the economy in which a particular business is based-both in terms of production of goods as well as the markets for the goods produced. At this point, prices are perfectly set to interest consumers and companies produce neither too much nor too little product. Market economies use this to determine product development and production. Also traders want to know what determines whether an aspiring business firm should enter a particular industry or simply start producing a new product or service. Or should a firm continue to be in business in an industry in which it is currently engaged or cut its losses and exit the industry.