THE MARKET FORCES OF SUPPLY AND DEMAND



Because of supply and demand, it makes market economies to work. Supply and Demand determine the quantity and price of any good when it is sold. Before thinking about how those policies of buyers and sellers will do to economy, you must fully understand how it will influence supply and demand.

A Market is any type of goods, services, as well as information in a field where buyers and sellers want to exchange. They are very much organized. Although in most markets, buyers and sellers never meet each other, however, whatever they are buying or selling, their trade becomes successful without physical contact.
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Market creates many typed of forms and one of them is competitive market. A Competitive Market is a market where buyers and sellers have little power to control the price of certain goods or services. There are three most important characteristics in the maximum structure of competitive market.
1) Goods are identical
2) The field is not monopoly; no buyers and sellers would be hurt by market price.
3) Buyers and sellers are price takers
The Competition is perfect otherwise they are monopoly, which means there is only one seller and that seller controls the price of every good, or they are not very much aggressive in selling competition.








DEMAND

PRICE- Quantity Demanded is the total amount of goods that buyers are eager and competent to get. Because it According to the Law of demand, when the quantity demanded of a certain good rises, the price of the good falls vice versa
INCOME- When there is a lower income, it means that you can only spend little in total, and you will spend little on some of goods. When income increases, the demand also increases. This is called normal good. When income increases, the demand decreases. This is called, inferior good.
PRICES OF RELATED GOODS- When two kinds of things can be consumed for a similar usage, one can be replaced by the other and these two goods are called substitute. They are mostly used to full-fill a certain good’s missing place like tomato juice and orange juice. Complements are some two kinds of things are often used together. One is complement of the other so when the price of a good increase, its complement's price will also increase. They are mostly goods that are always needed to be used together like mp3 and earphones.
TASTES- Tastes are mostly are based on past events, social, and psychological forces.
EXPECTATIONS- What you are predicting now for the future affects your demand for goods and services.


DEMAND SCHEDULE AND DEMAND CURVE

Demand schedule is a table that shows connection between price of a good and quantity that is demanded at a certain price. Demand curve is the graph that shows the connection between the price and quantity of a certain good. It graphs the demand scheduled. It is the downward-sloped line; it has to do with price and quantity of a certain good. When the demand curve shifts to the right, it means that the demand of the good had increased which results in higher price and higher quantity. On the other hand, when the demand curve is shifted to left, it means that the demand of the good had decreased, lower price with lower quantity.


MARKET DEMAND vs. INDICIDUAL DEMAND

Market demand is the total of all people’s demands for certain good or services.





SUPPLY


WHAT DETERMINES THE QUANTITY AND INDIVIDUAL SUPPLIES

Quantity supplied: the total amount of goods that buyers are eager and competent to sell

PRICE- Since the quantity supplied is increased as the price is increased, and decreases as the price decreases, quantity supplied is positively related to price of the good. The Law of supply is when quantity supplied of a certain good rises, the price of the good will fall.
INPUT PRICES- Input are the items that need in order to have one good. For example, the input of a cell phone is steel, electricity, motor, chips, glasses, inks, and so on. When the price of one of these inputs is increased, the firm will supply less cell phone. This means that the supply of a good is negatively related to the price of these input items.
TECHNOLOGY- because of the technology, it reduced the amount of necessary labor while keeping the amount supplied the same.
EXPECTATIONS- The amount of the good supplied today is extremely important in developing the future. For example, you heard news that air would now be sold instead of having it naturally with us. Then you may want to save some today.


SUPPLY SCHEDULE AND SUPPLY CURVE

Supply schedule is a table that shows connection between price of a good and quantity that is supplied. Supply curve the graph that shows the connection between the price and the quantity of a certain good supplied. It slopes up direction. When the supply curve shifts to the right, it means that the supply of the good had increased which results in higher price and higher quantity. On the other hand, when the supply curve is shifted to left, it means that the supply of the good had decreased, lower price with lower quantity.

Supply and Demand determine the amount of good that are sold in market and its price. The Law of supply and demand state that the price of any good is determined by the relationship between supply and demand of the good.

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EQUILIBRIUM

According to the graph, a point where demand curve and supply curve meet/intersect, is the equilibrium point. Equilibrium is basically a point where quantity supplied is equal to quantity demanded. The amount when the quantity supplied and quantity demanded are at the equilibrium price is called Equilibrium quantity. The price at which quantity supplied and quantity demanded are equal is called Equilibrium price. The equilibrium price is also known as, the market clearing price, all buyers and sellers are satisfied with what they bought what they wanted to buy and sold what they wanted to sell.
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In a situation where there is excess of supply when it is greater than
quantity demanded, it is called surplus. A price of a certain item will continuously fall until the market reaches equilibrium. On the other hand, shortage is a situation where excess of demand when it is less than quantity supplied. When shortage occurs, there are more buyers than the sellers therefore buyers many have to wait for a long period of time in order to achieve the good. During shortage, the sellers are likely to higher the price of the good in shortage because people will try to buy them although it is expensive; there is no other choice.
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Questions:
1. In a market economy, what do prices do?
A: They allocate scarce resources


2. How is a market formed?
A: By sellers and buyers

3. What is a competitive market?
A: A market where there are numerous buyers and sellers that individuals have no effect in the market

4. In what market do the consumers and producers have no control over price?
A: competitive market

5. How are quantity of demand relate to the price of a good?
A: Negatively: if the price increases, the quantity decreases
Positively: if the price decreases, the quantity increases




SOURCES
http://www.culturaleconomics.atfreeweb.com/111%20114%20MBB%20Macro%20Graphics/Micro/Fig%203.7%20Chg%20Eq.jpg
http://www.aidclick.com/wp-content/uploads/ist2_4822639_choices.jpg
http://tutor2u.net/economics/gcse/images/demand_supply_price_equilibrium1.gif