Law of Supply and Demand

Essay by cmdoUniversity, Master'sA+, November 2006

download word file, 8 pages 4.7


In this paper we are going to examine four different scenarios that demonstrate the laws of supply and demand in our economy. The first section is going to describe the effect of income increases on the computer market. In the second section, we are going to examine the effects that major construction to the tunnels surrounding Manhattan have on the Manhattan apartment market. In the third section, we will look at the elasticity of business and commercial airline passengers and examine this elasticity. The fourth section will explain how a market with two different sports teams changes with winning records and ticket prices.

Section One

Figure 1. Income increase example on demand for computers

The above graph illustrates the short-term effect an increase in consumer income would have on the demand curve for computers. Prior to the increase, the equilibrium point occurred at a quantity of 150,000 computers priced at $600.

As consumer income increases, an immediate shift in demand occurs as shown by the blue line in Figure 1. At the current equilibrium price of $600, the demand increases to about 220, 000 computers, resulting in a shortage. In response to this shortage, assuming nothing influences the supply curve, the computer producers will increase the price of computers. This in turn causes a reduction in demand and a new equilibrium point at a higher price. In this graph, it would be around 180,000 computers at a price of $750.

Section Two

Graph 1 represents the apartment market in Manhattan. The equilibrium is at (120,000, $2,000). The Manhattan area has a price control on the apartment market. This serves as a price ceiling which does not allow owners to rent apartments for more than $2,000 per month. These price controls create a shortage in the apartment market. As Marks...