Supply and Demand and Price Elasticy Paper

Running head: SUPPLY & DEMAND, AND PRICE ELASTICITY PAPER

Supply & Demand, and Price Elasticity Paper

Learning Team C

University of Phoenix

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Supply & Demand, and Price Elasticity Paper

Introduction

Demand relates to the quantity of a product that consumers are interested in purchasing. Supply is the quantity of a product that the manufacturer is willing to produce. In many instances, the demand in North America has been constant, and supply has maintained the pace. Smith suggests "… that the biggest growth opportunities of tomorrow will be those that address the needs of consumers who are overwhelmed by super-abundance…" (Smith, 2009, ¶ 6, http://web.ebscohost.com.ezproxy.apollolibrary.com/ehost/pdf?vid=8&hid=107&sid=6a1a359c-acb5-4b20-b77f-ed80c380967c%40sessionmgr110). This paper will discuss the causes of change in supply and demand, market equilibrium, price elasticity and the market systems.

a. Explain what causes change in supply and demand.

The law of supply and demand is "the claim that the price of any good adjusts to bring the quantity supplied and the quantity demand for that good into balance" (Mankiw, p.

price of market balance

Perfectly inelastic demand

Perfectly elastic demand

77). There are many factors that create change in supply and demand.

Demand is affected by (i) price demanded for the product and price of complementary goods and of substitute goods, (ii) income of the consumer, along with (iii) the tastes, preferences, and expectations of the customer.

(i) Price

The consumer determines the price that he is willing to pay for an item. If the price being offered can be undercut by a direct competitor, or is considered too high of a cost by the customer, the buyer may consider alternatives. Substitute goods will lend themselves to be suitable alternatives if the consumer determines that reduced quality is appropriate for his need thus reducing demand.

(ii) Income

The level of discretionary funds that a household...