Supply and Demand and Price Elastcity in Economics Paper

Supply and Demand and Price Elastcity in Economics Paper -...

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Supply and Demand 1 SUPPLY AND DEMAND AND PRICE ELASTICITY IN ECONOMICS Supply and Demand and Price Elasticity in Economics Jeannette Sutherland Jermaine Cruz Joey D. Finley Kellie Williams University of Phoenix
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Supply and Demand and Price Elasticity in Economics One of America’s earliest known economists, Adam Smith, made a simple yet long lasting observation, that households and firms interacting in markets act as if guided by an “invisible hand.” Having a good grasp of the supply and demand allows for a better understanding of how markets operate, determining the price and elasticity of it for example. In any market, buyers look at the price when determining how much to demand, and sellers look at the price when deciding how much to supply (Mankiw, 2007, p. 9). To explain what causes changes in supply and demand first the supply and demand schedules must be understand. Supply schedules being “a table that shows the relationship between the price of a good and the quantity supplied” and demand schedules being “a table that shows the relationship between the price of a good and the quantity demanded.” (Mankiw, 2007) Therefore, when a demand for a good or service occurs, sellers will provide the buyers with the supply. What will cause a change in supply and demand is the price or the demand of the good or service. For instance, with the recent economic crisis, consumers’ demand for some goods such as foods have decreased, due to their inability to afford what they want. When this occurs sellers begin to lower prices which will then cause an increase in supply where the demand stays the same. On the other hand, if a good has a high demand and little supply, the price for the good will have high demand as well. As mentioned before, the financial crisis affects supply and demand by lowering the demand of the good while the supply of the item remains low. In this case sellers will lower prices while their profits shrink.
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