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The classical economics is pillared on the twin concepts of the demand and supply. Micro economics analysis of the consumer behaviour is explained by means of the law of demand and the firm behaviour is explained by means of the law of supply. Law of demand simply states that, ceterus paribus, a consumer would demand less of a good if its price is higher and more of the same good if its price is lower.
Law of supply, on the other hand, proposes that firms would supply more of a good at a higher price than they would at a lower price. Again all other factors, notably scarcity of the good, are held constant. This results in an upward sloping supply curve. The market equilibrium is attained at a point where the demand and supply curves intersect giving us the equilibrium price. In this analysis the impact of an increase in consumer income is shown by a shift in demand curve outside. On this demand curve the consumer demands more of the good at the same price. Similarly a specific choice pattern of consumer would result in a differing demand curve. For instance take the example of a consumer who is collector of paintings from a particular historic period. This consumer can pay any price for a desired painting up to a certain point and his demand curve may be shaped accordingly. Whereas the supplier would continue to be governed by the basic law of supply. ...
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