Sample Essay On How Demand And Supply Determine Price In The Market

Demand is the quantity of a good or service that consumers are willing to buy at a given price in a given period of time while supply is the quantity of good or service that suppliers are willing to supply in a given price at a given period of time (Slavin, 2014). Price can be describe as the worth, cost or value of a product i.e. good or service. The market is a place where buyers and sellers meet and exchange their goods or services (Mankiw et al., 2011). Changes in either demand or supply of a good or service will either have a positive or negative change in their prices in the market. The quantity demanded of a particular good is the amount that consumers are willing and able to buy depending on their purchase power. While the quantity supplied is that amount that producers are willing and able to supply to the market in a given price (Slavin, 2014)
The law of demand states that if all other factors remain constant, an increase in the price of a commodity will result to a decline in its demand and vise versa while the law of supply states if all other factors remain constant an increase in price of a commodity will result to an increase in supply of the good and vise versa (Mankiw et al., 2011). For instance, if there is a decrease in the price of sugar in the market, there will be an increase in its demand by the consumers and if its price increases on the other hand there will be an increase in its supply that is, the suppliers will try to maximize on the positive change. Price of a good is usually derived by the interaction of forces of demand and supply Slavin, 2014). An exchange normally occurs where buyers and sellers of the commodity have agreed on price. When an exchange happens in the market the agreed upon price will be referred to as the equilibrium price. The market price does not usually favor both the suppliers and buyers because it will depend on how competitive an individual is in the market. When there is a change either in demand or supply, the equilibrium will also respond to the change accordingly.
There four basic laws of demand and supply that hold in the market; first, if there is an increase in the demand, and supply remains the same, a shortage of goods occurs and there will be a higher equilibrium price. Secondly, if there is a decrease in demand, and supply remains the same, surplus will result and there will be a lower equilibrium price. Thirdly, if the demand of the commodity remains the same and supply increases, surplus will occur and hence a lower equilibrium price will be experienced and lastly when the demand is unchanged and supply decreases, there will be a shortage and there will be a higher equilibrium price (Mankiw et al., 2011). The forces of demand and supply also hold in other special markets such in determination of the wages of labor. We can liken individuals who try to sell their labor services to suppliers while businesses are demanders of their services and they try to buy their services at the lowest price possible. As a result a wage rate occurs, which is the equilibrium price (Slavin, 2014). Conclusively, Demand and supply are usually guided by the economic principles that people are rationale in their consumption and they will try to purchase those goods and services that give maximum satisfaction and that are pocket friendly. On the other hand, firms want to produce that level of goods and services that maximizes their profit.

Works Cited

Mankiw, N.G., Taylor, M.P. Economics. 2nd ed., revised ed.th ed. Andover: Cengage Learning., 2011. Print.
Slavin, S.L. economics. 11th Ed.th ed. Boston: McGraw-Hill. ISBN 978-0-07-802180-0, 2014. Print.