The cartoon, located to the left of the text, is a great representation of what happens with supply and demand in the economy. The two arms that are wrestling represent the supply and demand of an economy. The little man at the top, who is holding up a leveler above the two arms, or supply and demand, is showing that at that point they are equal. This point, where supply and demand is equal, is also called the equilibrium point. In economies this is what happens. The suppliers try to keep up with the demand from the demanders. The demanders determine how much or how little needs to be supplied. Then at some point, both the supply and demand will equal each other.
Supply and demand was one of the first things taught in Macroeconomics. Demand always has a negative relationship with price because of the Law of Demand. The demand line is a negative line. Demanders are households / consumers. A few things determine the demand side:
1. Income
• How much money I have / make, determines how much I buy.
Products:
a) Nominal Good- demand rises as income rises
Examples= health care, quality of clothes, cars, and electronics
b) Inferior Good- income rises demand falls
Examples= Ramen noodles, McDonalds, and Spam
2. Tastes / preferences
3. Population / market size
4. Prices of related goods
• What’s the relationship?
a) Substitution= goods that serve the same purpose
Example= Coke and Pepsi
When the price of Pepsi increases the quantity demanded of Pepsi decrease (Law of Demand), which results in an increase in demand for Coke.
b) Compliments= goods that go together.
Example= Peanut butter and Jelly
When the price of peanut butter increases the quantity demanded of peanut butter will decrease, meaning that the demand for jelly will also decrease.
The supply is a positive line and has a positive relationship with the price because of the Law of Supply. Suppliers are firms / businesses. A few things determine the supply side, which are:
1. Input Prices
• Example= labor
Price of labor= wages
When wages increase, supply will decrease because a firm cannot produce as much if they have to pay their employees more.
2. Technology
• When technology increases, supply will increase as well.
3. Government Policy
Equilibrium is the point where the supply line and the demand line are touching. At this point both the supply and demand are equal to one another. There is no surplus or shortage at the equilibrium point.
By: Elli Fields
McMillan, Brad. "'Supply' and 'Demand' Arm Wrestle Keeping the 'Industrial Real Estate Market' Steady." Cartoon. CartoonStock. N.p., n.d. Web. 11 Apr. 2013. <http://www.cartoonstock.com/cartoonview.asp?start=&search=main&catref=bmm0122&MA_Artist=Not+Selected&MA_Category=Not+Selected&ANDkeyword=supply+and+demand&ORkeyword=&TITLEkeyword=&NEGATIVEkeyword=>.
No comments:
Post a Comment