Question

This assignment focuses on demand, supply, and equilibrium. Let’s start with the basics. Begin your essay by providing the following information.

• Explain the difference between a movement along demand and supply curves and a shift of demand and supply curves.
• What can cause the above situations? Provide an example for each.
• Describe how equilibrium is found.
• Describe how a shift of the demand or supply curve can affect equilibrium.

Now, select an industry with which you are familiar or one you would like to study. This industry will also be used in future assignments for this course.

After selecting your industry, identify a product or service that your chosen industry produces. Add the following information.

• Define the current status of supply and demand for the product or service you identified.
• Identify at least one factor that has caused the supply curve to shift for that product or service.
• Identify at least one factor that has caused the demand curve to shift for that product or service.

Answer 1

1) The law of demand states that there is an inverse relationship between price and quantity demanded, other things remaining the same.

Change in quantity demanded is the movement along the demand curve, whereas, change in demand is the shift in the demand curve due to change in determinants of demand.

A movement along the demand curve occurs when a change in quantity demanded is caused only by a change in price, and vice versa. A shift in a demand curve occurs when a good's quantity demanded changes even though price remains the same.

2) Factors causing shift in the demand curve:

· Size of the market: Demand will change or shift if the number of consumers for the product increases. The demand curve will shift to the right.

· Income of the consumers: Changes in income shifts the demand curve. Increases in income increases the demand for normal goods and decreases in income increase the demand for inferior goods. The demand curve will shift to the right.

· Increase in the price of related goods. If the price of substitute goods falls, then there is a shift in the demand. If price of large cars increase, then the demand for small cars will increase. Demand curve will shift to the right for small cars. In case of complements, as an example, if the price of gasoline increases demand for cars will fall. The demand curve for cars will shift to the left

· Tastes and preferences of consumers. Demand will depend upon the tastes and preferences of consumers. If there is a preference for health foods, then the demand curve for health foods will shift to the right.

· Expectations: If the consumers expect the prices to fall in the future, then demand curve will shift to the left.

3) Market equilibrium is determined by the interesection of demand and supply curves.

4) If the demand curve shift to the right, the equilibrium price and quantity is increased. If the demand curve shifts to the left, the equilibrium price and quantity fall.

If supply curve shifts to the right the equilbrium price falls and quantity increases.

If supply curve shifts to the left the equilbrium price increases and quantity decreases.