Question

Read chapters 1-3. Design a market for a good of which you are the manufacturer. Using the laws of supply and demand describe prices, quantities, and the functioning of supply and demand whereby consumer and sellers decide on prices. Illustrate with a graph.

Answer 1

In economic terminology, demand is not the same as quantity demanded.

When economists talk about demand, they mean the relationship between a range of prices and the quantities demanded at those prices, as illustrated by a demand curve or a demand schedule. When economists talk about quantity demanded, they mean only a certain point on the demand curve, or one quantity on the demand schedule. In short, demand refers to the curve and quantity demanded refers to the point on the curve.

When economists talk about supply, they mean the amount of some good or service a producer is willing to supply at each price. Price is what the producer receives for selling one unit of a good of several . A rise in price almost always leads to an increase in the quantity supplied of that good or service, while a fall in price will decrease the quantity supplied. When the price of gasoline rises, for example, it encourages profit-seeking firms to take several actions: expand exploration for oil reserves drill for more oil; invest in more pipelines and oil tankers to bring the oil to plants where it can be refined into gasoline build new oil refineries; purchase additional pipelines and trucks to ship the gasoline to gas stations; and open more gas stations or keep existing gas stations open longer hours.