Demand, supply, and equilibrium Term Paper Example | Topics and Well Written Essays - 1750 words

Demand, supply, and equilibrium - Term Paper Example The amount of a product that people in a market are willing to buy is known as the demanded quantity. The existing relationship between quantity demanded and price is known as the demand relationship. The factor of supply indicates the quantity of a product or a service that can be offered by the market. The quantity supplied is the amount of any good or service that the producers are able to supply in return of a certain price. The factor of price is a reflection of the demand and supply in the market. The supply and demand relationship underlines the key decisions regarding the allocation of resources in a market. In the theories of market economy, the demand and supply theory is used to allocate the available resources in the best possible manner. The demand for a product is the representation of how much the buyers are willing to buy at different prices. Thus, demand can be defined as the existing relationship between quantity and prices while maintaining all other relevant factors as constant. The law of demand states that the higher the price of the goods, lesser would be the demand for the goods, if the other relevant factors are kept constant (Gomes, King and Stonecash 215). This means that a higher price would incur a lower demand. According to the law of demand, the factors of quantity demanded and price are inversely proportional. Therefore, a lower price would mean a higher quantity demanded. The market demand represents the total of the demands of all the individual buyers in a market. Since at a higher price, both the price and the opportunity cost of the purchase of the goods and services increase, therefore the amount purchased by buyers at high prices is lesser. People generally try to avoid buying any product o r service that will make them forgo the purchase and consumption of a product more important to them. Thus, a high opportunity cost often leads to a decrease in