Define the laws of demand and supply. Give at least one example

Define the laws of demand and supply. Give at least one example

Supply and demand are critical for any economy as they significantly determine the prices of products and services within the economy. Laws of market economy also content that a point of equilibrium will always be reached when assessing demand and supply in the economy.

Defining the Laws of Supply and demand

The laws of supply and demand explores the interaction between sellers of a given product and the buyers. The law of supply contends that supply of a given product/service will increase of the price also increases but as long as other factors are held constant (Nitisha, 2018). An increase in price makes suppliers to increase their produce to the market to earn more profits. On the other hand, the law of demand states that the price and quantity demand are inversely proportional to each other as long as other factors are kept constant.

Factors that create shifts in demand and supply in the Market

There are many factors that can result in a shift in demand and supply of products or services to the market. The first one is price since when the price is higher, the supply increases but the demand reduces. The second factor is the income of the buyer. An increase in income increases the purchasing power of the buyer as there is presumably more disposable income (Franks & Bryant, 2018). Another factor is changes in consumer tastes and preferences which dictates that buyers are likely to but products they perceive to be a preference or meeting their taste. Products that meet customer preferences will attract higher supply to meet the increased demand. For example, an increased preference in Toyota brand will attract more demand in Toyota brand cars than from other brands (Hu & Feng, 2017). Consequently, Toyota is likely to experience higher demand and subsequently high supply.

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Difference between a Change in Quantity demanded and Change in demand

A change in demand refers to a total shift in demand (demand curve) to either left or right due to changes in price. On the other hand, a change in quantity demanded reflects in the either contraction or extension of demand along the demand curve due to changes in price. In this case, the demand curve doesn’t move. For example, a decrease the price of strawberries for instance when the supply is higher, results in more people purchasing the strawberries hence an increase in the quantity demanded (Yang, Cai & Hamori, 2018). However, a total change in price due to this increase in supply will result in a change in demand.

How the Price of the Product is determined

Oil prices are often determined by the global supply and demand. When the supply from oil producing countries increase, the prices are regulated and when there is too little supply, the prices increase at the international market (Bals & Tate, 2018). Assuming other external factors like political (in)stability is kept constant, the demand from major players, future supply and reserves and the current supply/output all dictate the international oil prices.