Question

One of the classic principles of macroeconomics is the law of supply and demand. This discussion forum ask you to complete several tasks in your initial post, all related to this law.

First, please explain what is meant by the law of supply and demand and how this law could be graphically summarized. As you do so, pay careful attention to the difference between a movement along a supply or demand curve as opposed to a shift in the curve.

Second, pick a product of your choice (e.g. apples, cars, widgets, etc) and explain how this law can explain the market for this product.

Finally, chose at least two of the videos below and answer the associated questions

Answer 1

Law of demand states that other things are constant, the price is inversely related to quantity demanded of a commodity. It determines the downward slope of the demand curve. Similarly, the law of supply states that other things being constant, the price is directly related to quantity supplied. When the price of a commodity rises, its quantity supplied by the firm rises. The upward slope of the supply curve is explained by the law of supply.

The difference between a movement along a demand curve and shift of a demand curve is as;

when the price of a commodity changes then changes in the quantity demanded or supplied implies a movement along the curve respectively. While a shift represents change in demand or supply which is caused by factors other than price of a commodity, for example, price of related goods, income or change in tastes and preferences are determinants of change in demand while for shift in supply curve, factors are input price, number of firms in the market and economic shocks etc.