Question
In: Economics
What impact does the relationship of supply and demand have on pricing?
What impact does the relationship of supply and demand have on pricing?
Solutions
Expert Solution
Price is determined by the intersection of demand and supply curve. Change in demand, supply or both leads to change in equilibrium price.
Effect of increase in Demand:
Effect of Decrease in Demand:
Effect of increase in supply:
Effect of decrease in supply:
Increase in demand increases the price level and vice-versa. Increase in supply decreases the price level and vice-versa. Increase in demand and supply leads to increase in quantity demanded but ambiguous effect on price because it depends upon the magnitute of shift of demand and supply curve. Similarly, for decrease in demand and supply.
Effect of decrease in demand and increase in supply:
Effect of increase in demand and supply but increase in demand is greater than increase in supply:
Increase in demand is less than decrease in supply effect on price level:
Rahul Sunny answered 1 year agoRelated Solutions
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