Question

Q1-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.

Q2- Also, there are two answers for a student that requires a response:

1- Changes in the supply and demand can affect market outcomes because the supply and demand forces determined the market equilibrium price and quantity. For a particular product or a service the demand function is downward sloping and the supply function is upward sloping. Their interaction determine the equilibrium in the market at which the quantity supplied is equal to the quantity demanded. Changes in supply and demand basically indicate a shift in the supply curve and / or the demand curve. Suppose that the supply curve is unchanged but the demand curve shifts. If the demand is increased and the demand curve is a shifted out both the equilibrium price and the equilibrium quantity will increase. In contrast if it is decreased then both equilibrium price and quantity will decrease. As against if the demand is fixed but the supply is shifted to the right, price level decreases and the quantity increases. In contrast if the supply curve is shifted to the left then the price level increases and the quantity decreases. In this manner changes in the supply and demand can affect the market equilibrium price and quantity
Government regulation on price comes in the form of price floor in which a minimum limit is imposed on the market price and price ceiling in which a maximum limit is imposed on the market price. In case of a price floor the market experiences a surplus of production while in case of a price ceiling in the market experiences a shortage.

2- There is a relationship between supply and demand

The increase in the offered commodity with constant price leads to a decrease in the equilibrium price and an increase in the quantity

As for the decrease in the commodity offered with the stability of demand, it leads to an increase in the equilibrium price and a decrease in the quantity. The increase in demand with the stability of the commodity offered leads to an increase in the equilibrium price

As for government regulation of prices, it is useful and returns to seeing the interest of the consumer without neglecting the interest of the owner of the product, but in order for some to not exploit the consumer and make him pay a large amount that the offered commodity is not worth.

In order for some not to drop the price of the product madly in order to attract the buyer, which harms other merchants who offer the same product

Answer 1

Market Equilibrium

A market equilibrium occurs where demand curve ( negetively sloped) and supply curve ( positively sloped) intersect each other.

See the graph below------( with imaginary numerical figures)

Point E is the Equilibrium point and Qe (40 units ) is the Equilibrium Quantity

Pe ($4) is the Equilibrium price

# Changes in demand and supply and market outcomes------

CHANGE IN DEMAND------------( SHIFT OF DEMAND CURVE)

1) INCREASE IN DEMAND( RIGHTWARD SHIFT IN DEMAND CURVE)-----

See the graph below------

Increase in demand( rightward shift of demand curve)

News equilibrium point=E'

New Equilibrium price increases to $5

New Equilibrium quay increases to 50 units

Decrease in demand ( leftward shift of demand curve)

New equilibrium price falls to $ 3,

New equilibrium quantity decreases to 30 units

Change in supply------

1)​​​​​​​INCREASE IN SUPPLY

2)DECREASE IN SUPPLY

Increase in supply( rightward shift of supply curve)

New equilibrium quantity increases to 50 units

New Equilibrium price falls to $3

Decrease in supply-( leftward shift of supply curve)-----

New Equilibrium price increases to $5.

New Equilibrium Quantity falls to 30 units

#PRICE CONTROL BY GOVT INTERVENTION

​​​​​​​There are two ways by which govt intervenes with market forces equilibrium-------

PRICE CEILING

PRICE FLOOR

Price Ceiling

​​​​​​​A maximum price imposed on sale of essential goods by govt in order to protect consumers.

A price Ceiling below the equilibrium price is a binding.

There is a shortage of 50-30= 20 units as supply is less than demand

Price. Floor

​​​​​​​ A minimum price of goods fixed by govt in order to protect producers.

A price floor above the equilibrium price is a binding.

There is surplus in such case of 50-30=20 units as supply is greater than demand.

Hope my graphic explanation will help you.