Microeconomics and the Laws of Supply and Demand

MICROECONOMICS AND THE LAWS OF SUPPLY AND DEMAND 3

Microeconomicsand the Laws of Supply and Demand

Microeconomicsand the Laws of Supply and Demand

Matchingup the demand for a particular product and the supply for the same iskey to the success of any business. These two forces have a bearingon the price of a commodity. An increase in the price of a commoditywould result in a decrease in the amount demanded if all factors areheld constant. Similarly, increased demand would exert an upward pushon the prices of that commodity. On the same note, an increase in thesupply of a commodity would exert a downward pressure on the price ofcommodities, if all factors remain constant. This means that ifsuppliers need to have their commodities cleared in the market, theywould have to lower the price and vice versa (Arnold,2011).The equilibrium price would be attained at that level where thedemand equals the supply. In this case, an increase in the price of acommodity would cause a decrease in demand, while supply increases,thereby resulting in the elimination of any shortage that may bepresent. This adjustment would persist until such a time whenequilibrium is attained between the initial original supply curve andthe new demand curve. In instances where prices are above theequilibrium, the supply would increase while demand decreases,thereby exerting a downward pressure on the prices. At prices lowerthan the equilibrium, the supply would decrease while demandincreases thereby creating a shortage, which essentially causes anincrease in the prices (Arnold,2011). Of particular note is the fact that the price would be higher, justas would be the amount supplied and demanded, at the new equilibrium.There are varied factors that affect the price at which goods aresupplied including change of consumer preferences, price ceiling, aswell as change in population of a particular location, among others.

References

Arnold,R. A. (2011).&nbspMicroeconomics10e.Mason, OH: South-Western Cengage Learning.