Dear Ms. Jane Doe,
RE: DEMAND AND SUPPLY
I would wish to draw your attention on the economic concepts given. The demand and supply are concepts within the discipline of economics. Economics, therefore, in simple terms, is the study of the production, distribution and consumption of goods and services (Marshall 288).
The demand and supply concepts have their laws. For the execution of the ideas, the rules should be followed. The demand law states that a lower quantity of goods and services will be demanded at higher prices given that other factors are equal. There are reasons for observing the law of demand. These reasons include substitution effect and the real income effect. The substitution effect is the propensity of the persons to substitute in favor of inexpensive goods and services. In addition, the real income effect is the change in the purchasing power that exists when the prices of goods and services change (Marshall 288).
Alfred Marshall, a leading economist of the early 1920’s, was the first person officially to unleash the analytical power of the demand and supply concept. Other economists such as Adam smith and David Ricardo also tried to make improvements in the idea. Since then the concepts have been of high value to industries, governments and all people (Marshall 288).
There are also the determinants of demand. The determinants are tastes and preferences, the prices of related goods, income, market, changes in the expectations of future prices among many others. The determinants are factors that people need to consider before demanding any product. In our company, we will use these determinants to find `out which products are the most likely preferred. Our company will use the concept top set fair prices such that we don’t lose customers. We will also use it while procuring for our products (Marshall 288).
The supply law states that at higher prices, there will be a larger quantity of goods and services supplied, providing that all other things are equal. The reasons for observing the law of supply are that higher prices increase incentives that can be used to increase production. It is also due to the law of the rising costs (Marshall 322).
The determinants of the law of supply are the taxes and subsidies, technology, price expectations, number of firms among many others. They are the factors that producers consider when producing goods and services for the consumers (Marshall 322).
Furthermore, the relationship between demand and supply is getting effect from equilibrium. The equilibrium price occurs when the demand and supply curves meet. Theses curves occur on a graph that has both demand and supply plotted. Stable equilibrium occurs when a shock disturbs the prevailing equilibrium between supply and demand. There will be self-corrective forces that will cause the disequilibrium to return to equilibrium. There may also be a shortage whereby the supplied is insufficient. A surplus occurs when the quantity supplied is in excess. Economists use them in predicting potential markets that investors require to investing (Marshall 322).
In a nutshell, the demand and supply economic concepts are one of the many available economic concepts. The concepts are the opportunity cost, scarcity and choice and others.
Henry Statham.
Work Cited
Marshall, A. Principles of Economics. London: Palgrave Macmillan, 2013.
