Supply and Demand - Essay Example

Causes of shifts in demand curve Economists stipulate that increase and decrease in the quantity of a product demanded depends on the unit price imposed thus; the demand curve will shift upwards from the right towards the left at reduced prices, while it would reflect backward slumps at increased unit prices. Further, changes in per capita incomes and shifts in the prices for substitute commodities also influence a positive or negative shift in the demand curve. Demand shifts may also occur in the event of varied tastes and preferences, different expectations, and standards of living (Musgrave, et al 2009). Fig.1 demand and supply curves at the state of equilibrium Discussion of the equilibrium price and quantity, and the effects of demand and supply shifts upon the equilibriums Equilibrium price and quantity The demand and supply utilities pose equity in market when the quantity supplied equals the foregoing amount of demand.

Similarly, the equilibrium results when the amount supplied meets all the demand satisfactorily without any remaining surplus. The situation is called a prefect market whereby the demand and supply curves conform at a certain point whereby the imposed unit price for the commodity is favourable to buyers and sellers such that all unit sales excel meeting the demand satisfactorily (Boyes, & Melvin, 2013). Fig.2 equilibrium points Effects of demand and supply shifts upon the equilibriums Demand and supply shifts affect equilibriums when one of the utility shifts while the other one stagnates.

For instance, a increase in the supply for products while the demand remains constant shall cause a reduction of the prices while in the event of increased supply, the price will increase accordingly (Cohn, 2007). Consequently, an increase in the demand for commodities while the supply remains constant leads to increased prices and thereby the shifts move unevenly and cause disequilibrium, which implies varied instead of equated prices to the quantities. Fig.2 shifts in the demand and supply curves and the point of equilibrium Price elasticity of demand and supply Price elasticity of demand and supply suggests the natural course that the unit prices of commodities will either increase or decrease whenever the demand or supply increases or reduces respectively.

Price elasticity of demand prevails when the rise of demand for products leads to increased prices since the supply remains constant (Musgrave, et al 2009). This situation prevails for necessary goods such that increase in demand will lead to increase in prices, but with the absence of reduction in the marginal consumption or increased supply, buyers will continue to purchase the commodity at the increased price. On the other hand, price elasticity of supply occurs whenever product prices increase or reduce in the event of reduced or increased quantity in the market while the demand remains constant.

However, there are periods when demand and supply shifts are inelastic towards price increments and price reductions (Cohn, 2007). For example, the increase in the price of luxury and goods of ostentation will lead to increased demand and reduced supply thus causing price inelasticity such that the curves can never conform to the law of equilibrium. Fig.3 price elasticity