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Demand Curve, Supply Law, and Elasticity

What does the demand curve tell us about the price that consumers are willing to pay?

The nexus between the price of commodities in the market that consumers seek to purchase and their prices at that moment is clearly illustrated by a demand curve. The curve indicates the price at which buyers are willing and able to purchase goods supplied into the market with the assumption that other factors of demand like tastes and preferences, income, price of substitute goods, and other variables are constant (Klein, 2011).

Demand curve
Demand curve.

What is the law of supply and how do we illustrate it?

The law of supplies tries to relate the two variables: supply and the price of commodities in a given market setting. The supply law states that any increase in the price of a commodity, will likely inspire the resolve of the suppliers of that specific product to bring more of that commodity into the market, with good market prices, the suppliers get motivated to increase their production. However, this happens when all other factors are kept constant; this is because the suppliers are willing to take advantage of the good market conditions to maximize their profits (Bach, 2008).

To present the law of supply, a graphical account is necessary. The graphical design or curve is drawn to scale to perfectly describe the practical “kinship” between the price of goods and the extent that the producers are willing to take to the market. The “X” axis in the graph is a representation of the price at which the supplier’s purpose to trade their wares in the market while the horizontal axis denotes the number of wares that the suppliers are willing to supply into the market in relation to a given price.

Graph indicating the law of supply
Graph indicating the law of supply.

What does the supply curve tell us about the producer’s minimum supply price?

The supply curve illustrates concisely, the minimum price at which the suppliers in the market would want to supply their wares. Beyond the minimum price, producers are unwilling to take their wares into the market. The producers, in their transaction, have a minimum acceptable price below which they are unable to break even and so they prefer not to supply, this is well indicated by the supply curve

Over what range of prices does a shortage arise? What happens to the price when there is a shortage?

When a shortage occurs, it means that the supply into the market is lower as compared to the demand. In times of pricing, a shortage occurs whenever the price of an item in the market has been set below the equilibrium rate. It is worth citing that the forces of supply and demand determine the equilibrium rate. Predictably, any deficiency of commodities in the marketplace will “coerce” the suppliers of that good to amend their prices upwards with a view to attaining market equilibrium.

Illustration of shortage in relation to the market equilibrium
Illustration of shortage in relation to the market equilibrium.

Over what range of prices does a surplus arise? What happens to the price when there is a surplus?

A surplus occurs when the suppliers decide to sell off their products at a price that is higher than the equilibrium price. During surplus, the commodity prices generally go down to approach the market equilibrium point where the demand curve intersects the supply curve.

Illustration of shortage in relation to the market equilibrium
Illustration of shortage in relation to the market equilibrium.

Elasticity

Describe inelastic, unit elastic, and elastic demand by your own words. Give some examples of inelastic, unit elastic, and elastic products from our practical life and explain why those products are inelastic, unit elastic, and elastic.

Inelastic demand

Inelastic demand is achieved when the number of products and goods that are in demand do not change even when there is any alteration in the prices of these commodities. In spite of price variations of the product, its quantity in demand at the market remains invariable, there’s absolutely no effect of the price changes of the commodity on the quantity sought by the consumers in the market.

Most of the “very necessary” goods and services tend to have inelastic demand. Commodities such as gasoline are considered necessary that their demand curves are oriented towards “inelasticity.” The commodities that are considered to have inelastic demand are very essential in the daily management of consumer’s lives. People purchase these commodities irrespective of their pricing in the market.

Graphical illustration of inelastic demand
Graphical illustration of inelastic demand.

Unit elastic

Conventionally, the demand curve dictates that there is an indirect relationship between the number of products in demand and the price of the products. Unit elasticity dictates that any change in the price of any commodity automatically leads to alteration in the quantity of the commodity in demand.

Elastic demand

This type of demand rises and falls with the variation of the price. Elastic demand follows the conventional simple demand curve. Any increase in the price of the item leads to a relative reduction in the demand for the commodity. Commodities like sugar and the basic household items have elastic demand. Such commodities may be very necessary for life, but they have substitutes. The substitution effect harmonizes the demand of such goods with the market price.

Elastic demand

Provide examples of goods or services which elasticity’s of supply are (a) zero, (b) greater than zero, and less than infinity, and infinity.

Value of the elasticity supply Example of the goods
1. Zero Agricultural products, fresh produce
2. Greater than zero Motor vehicle spares, machinery
3. Less than infinity Basic commodities like sugar
4. infinity Food products

References

Bach, G. L. (2008). Economics; an introduction to analysis and policy (6th ed.). Englewood Cliffs, N.J.: Prentice-Hall.

Klein, L. R. (2011). The economics of supply and demand. Baltimore, Md.: Johns Hopkins University Press.