Question

Discussion 1

Recognize how changes in supply and demand affect market outcomes and explain the effect of government regulation on prices?

Use your own words and be sure to support your statements with logic and arguments. Post your comments.

Answer 1

The market price and market quantity of a good is determined by its demand and supply.

If the demand of a good increases, the equilibrium price of the good in the market will also increase. This will also lead to increase in the equilibrium quantity of the good in the market because suppliers would want to produce more at higher prices.

If the demand of the good decreases, the equilibrium price of the good in the market will also decrease and so would the equilibrium quantity in the market. This is because the suppliers would not want to produce more at lower prices.

If the supply of the good increases in the market, then the equilibrium price of the good in the market will decrease because of excess produce. But the equilibrium quantity will increase because demand of the product will increase with fall in its price.

If the supply of the good decreases in the market, then the equilibrium price of the good will decrease because of shortage of the produce. But the equilibrium quantity will increase because good will be demanded less at higher price.

Government regulation on prices means that government will fix a price of a product at a particular level. The main purpose of this regulation is to make the product affordable and protect interest of the consumers.

But government regulation of prices have ill effects. It reduces production because of downfall of prices. This creates shortage of the goods in the market. Also it leads to ill practices like hoarding and black marketing. This will not lead to growth in the economy.