Essay by masterbgCollege, UndergraduateA, June 2008

download word file, 4 pages 0.0

Downloaded 11 times

Every organization which provides goods or services to fee paying customers must, by its very nature, charge price for that good or service, to pay for its costs, have retained profits for investments and to keep its shareholders happy. In theory, the market price of any good or service is determined by the interaction of forces of demand and supply. The concepts of demand and supply can be claimed to be among the most important in economics. In order to understand either of them it is necessary to examine the factors that determine them. Although a good's price relative to other goods is probably the most important factor influencing demand for most goods, most of the time, there are other factors as well. These are disposable income, the price of complimentary goods and substitutes, tastes and preferences, expectations, size of population, advertising. Suppliers, on the other hand, are interested in making profits, and thus anything that affects profitability affects the supply.

These include the price of other products, costs, technology and goals of firms.

The price of any product is determined by the interaction of the forces of demand and supply. The market price is set at the point, where demand equals supply, equilibrium. When an economist refers to the demand for a product he/she means effective demand, which may be defined as "the quantity of the commodity, which will be demanded at any given price over some given period of time." However, the price of the good or service varies according to the changes in either demand or supply. In order to show that it is necessary to look at determinants of demand and supply separately. One of the factors that might affect the demand for beer is a disposable income, income less taxes. For most of the...